Date:Man, 14/10 1996 I.M. Skaugen
The Board of Directors of I M Skaugen ASA (IMS) and Skaugen PetroTans ASA (SPT) have agreed to enter into negotiations for the purpose of attempting to merge the two companies. The companies, both listed on the Oslo Stock Exchange, were demerged in August 1991.
IMS and SPT have each nominated their negotiating teams amongst their board members for the purpose of recommending an exchange of shares to the shareholders after negotiations with the other party.
For IMS this is Mr. Arild Ulmo and Mr. Erik Eik, while SPT is represented by Mr. Tore Steen, Mr. Gudmund Rønningen and Mr. Nils Gregusson. Each company will also hire its own independent corporate finance advisor for this process to attempt to reach an agreement which is fair and equitable for both the companies and their shareholders.
The merger is expected to be done on the basis of the two companies’ Audited Annual Accounts for 1995 and to be accepted by the Extraordinary General Meetings planned for November this year. The merger is further envisioned to take place by creating a new holding company, merge the activities of IMS and SPT into this company, and distribute some cash to the shareholders in addition to shares, in the new merged company. Upon completion of the merger in 1st quarter of 1997, the new merged company will most probably assume the trading name of I M Skaugen.
I M Skaugen ASA was previously a company that had many diverse shipping activities (gas carriers/dry cargo bulk carriers/product carriers/large and small crude oil tankers). Today IMS is a downsized customer oriented company with focus on petrochemical gas-transportation. IMS completed the basic restructuring of the company successfully by making a profit for 1995 after heavy losses the prior years and is today a financially sound company with a well structured balance sheet and solid capitalization through a successful stock issue early 1995;
IM Skaugen has now through strength started new projects and investments like the purchase of DS AS Idaho, chemical carriers through Princess Carriers and new LPG vessels through Tianfa Norwegian Gas Carriers ('TNGC), a cooperation with the Tianfa Group in Hubei, Peoples Republic of China ('PRC')
Norwegian Gas Carriers ('NGC') was built up as a fully integrated shipping company from 1992, but with a service company approach and philosophy; and now appears as a company with all functions substantially changed and the corporate culture altered;
Skaugen PetroTrans ASA has, since the company was established as a separate entity in 1991, become a focused oil services company and a leading independent operator of 'Ship to Ship Transfer' ('Lightering') of crude oil destined for USA. The company is performing an essential part of the US crude oil import logistics by handling approx. 8 pct. of US crude oil imports. This business activity yields today a return on the required capital employed in this business , and generates a higher 'Time Charter Equivalent' rate than some of the other major operators of similar tonnage in the general crude oil transportation.
Both companies are looking to expand in Asia to improve their position
SPT is overcapitalised for the present growth prospects of the Lightering business in the US Gulf, and has been looking for areas to expand, and better make use of the company’s capital resources. An analysis by SPT of possible geographical expansion of the lightering business gives rise to good prospects in Asia where port facilities, infrastructure and coastal characteristics make it difficult for use of large tankers with deep drafts.
IMS is concentrating its efforts strongly on the activities of Asia, and has now more than 60 pct. of the company’s resources dedicated to this area. The company has entered into a Joint Venture in the PRC for transportation of Liquid Petroleum Gas ('LPG'), Liquid Petroleum Products and Petrochemicals on the inland- and coastal waterways with PRC registered vessels operated from offices in PRC. IMS will as such also be involved in a transhipment service of LPG from coastal terminals to inland terminals in PRC.
Why merge the companies again after the demerger in 1991?
The demerger of IMS in 1991 and the establishment of SPT was considered optimal for both companies and their respective businesses for the purpose to downsize and restructure the activities around the respective companies competitive advantages, and safeguard against a potential domino effect should the companies not succeed in the planned restructures. The companies have successfully restructured their activities to the extent that the inherent financial and operating risks of their activities are manageable and controlled.
USA introduced a new Oil Pollution Act ('OPA'), which stipulated unlimited responsibility for shipowners sailing on USA in case of an oil spill. SPT had at the time ownership of many vessels and was as such directly exposed to the OPA regulations. A situation made more extreme with the company’s concentrated activity of transporting crude oil to USA and lightering in the US Gulf.
A merger of the companies will improve the penetration of the fast growing Asian market, improve the utilisation of the administrative and operating functions and corporate financial resources, as well as the possibilities of external sourcing of capital.
After 5 years of operating under the regulations imposed through the OPA of 1989, SPT and the world shipping community in general, is substantially more comfortable with the OPA liabilities. SPT has sold the crude oil tankers it owned, substantially reducing its exposure. Availability of proper insurance plans, and a large scale upgrading of the general tanker fleet with emphasis on technical systems for the purpose of safety have, together with the experience with the regulations rendered the risk of operating in the waters of USA more acceptable. Also, the presence of the OPA seems to necessitate lightering off the coast of USA.
Both companies’ strategic growth objectives are tied to the same geographical area. The companies’ activities and management composition could provide a better return combined, than on their own.
The total capitalisation and the limited range of activities of the individual companies do not appear any longer to have an investment appeal among the investment managers domestic and abroad. For investment purposes, both companies independently appear to call for a broadening of the business scope to make up for limited growth prospects and the risk of the present narrow business scope.
SPT is too small to effectively have its shares listed on a 'main' Stock Exchange, and the same can be argued for IMS over time. There is also confusion in the market place as to the two companies. A common name and identity by merging the companies may eliminate this confusion. The companies have many common shareholders, despite the 5 years passed since the demerger. A substantial number of these shareholders hold a few number of shares which makes it uneconomical for them to trade the shares, and makes it expensive for the companies to administer. A merger of the companies would aim to provide liquidity to such shareholders and establish a more cost effective shareholder structure.
For further information please contact:
Ms Hege Anfindsen at I M Skaugen ASA (47) 22 83 30 60 or
Mr Ole J Diesen at Skaugen PetroTrans ASA (47) 22 83 33 60