The planned amalgamation of Gulf Energy Development (Gulf) and InTouch Holdings (INTUCH) is aimed at simplifying the shareholding structure, strengthening the group's financial status and balancing the investment portfolio.
Both SET-listed companies have announced a strategic merger to restructure related companies within the group to maximise benefits for future operations and investments, and cultivate new growth opportunities in the energy and infrastructure and digital landscape.
The amalgamation will lead to the formation of a newly listed public limited company, and the conditional voluntary tender offer of Advanced Info Service (AIS) and Thaicom Public Company Limited.
Prior to the amalgamation, there will be two voluntary tender offers, including the offer for 36.25% of outstanding shares of AIS by Gulf, InTouch, Singtel Strategic Investments and Sarath Ratanavadi at a price of 216.3 baht per share.
The other tender offer is for 58.86% of outstanding shares of Thaicom by Gulf, Gulf Edge (a wholly owned subsidiary of Gulf), InTouch and Mr Sarath at 11.0 baht per share.
Gulf's deputy chief executive and chief finance officer Yupapin Wangviwat said the amalgamation aims to simplify the shareholder structure because the new entity will mean Gulf Group directly holds around 40% in AIS.
This would facilitate decision-making by AIS. This would mean that Gulf could decide what it would do directly in AIS without making a decision via INTUCH.
Gulf currently owns 47.37% of INTUCH, which in turn holds 40.44% of AIS.
"The new company will also balance the investment and revenue structure portfolio in terms of income stream and net profit," Ms Yupapin said.
She said before the amalgamation, the net profit contribution from the energy and infrastructure sector was 70% and 30% from InTouch. After the move, the structure would be 60% and 40%, respectively. Over the next couple of years, the new company would grow in terms of both the digital and energy and infrastructure sectors.
"After the new company is set up, we will keep on expanding renewable energy and liquefied natural gas in the energy sector, while AIS will keep on expanding in telecommunications, digital asset and data centre business, virtual banking, satellite services, blockchain and artificial intelligence. Therefore, energy and digital businesses will be balanced at 40% and 60% over the coming years," said Ms Yupapin.
She said the new company would have stronger financial fundamentals and better liquidity, so Gulf Group's net profit would rise an additional 2 billion baht per year.
Cash flow and dividends from AIS subsidiaries would gain an additional 5.5-6 billion baht per year.
She said the new company's financial status would be much better as the debt-to-equity (D/E) ratio would decrease from 1.7 times to 0.9 times, and this would lead to the better credit.
Sarath Ratanavadi, Gulf's chief executive, said he has yet to look into the details of how many InTouch employees would be affected after the merger. He added that the company might not have to do anything with INTUCH's employees as there are just a few of them.
"This is the first vertical amalgamation in Thailand. It is the most complicated deal, given it involves five listed companies of which four are local and one is foreign. The deal will also boost the SET's liquidity," added Mr Sarath.
CONTROL OVER AIS
Pisut Ngamvijitvong, senior equity research analyst of Kasikorn Securities (KS), said the amalgamation would create a better situation in terms of Gulf's D/E ratio by reducing it from two times to one, which means that in future Gulf, via the new company, would have more flexibility in terms of debt capacity post-transaction.
Mr Pisut said the new shareholding structure implies that the Ratanavadi Group may lose one board seat in the merged entity to Singapore Telecommunications (SingTel) but may be entitled to an increased quota on AIS's board.
Based on KS's calculation, the effective holding stake of SingTel over AIS should decline from the current 33.42% to 26.98% post-transaction.
For InTouch, the amalgamation is positive for the company. KS expects InTouch's share price to react positively to the special dividend per share of 4.5 baht.
On the negative side, it is not sure that InTouch will still pay its regular dividend from operations for the first and second half of 2024 other than the special dividend of 4.5 baht in first half of 2025.
Secondly, some high-yield and long-term funds may view this as a good time to switch from InTouch before it transforms into the new company to other high-yield counters such as AIS.
SHAREHOLDERS' BENEFITS
The amalgamation benefits InTouch shareholders the most in the short term because they will receive special dividends and retain investment in the new company, said Prakit Siriwattanaket, managing director of Merchant Partners Asset Management.
Investors who currently hold shares in AIS and Thaicom are recommended to hold for better long-term growth. In Mr Prakit's view, it is possible that the new company has some interesting projects under development.
InTouch has announced a special dividend for its shareholders. SingTel, one of its major shareholders, has reaped benefits of up to 10 billion baht from that, Mr Prakit added.
Meanwhile, AIS shareholders may not gain immediate benefits as the tender offer price of 216.3 baht is below the AIS current trading price of 220 baht. That indicates Gulf's intention not to increase its investment proportion in AIS from the current 40% to take control of the management.
"Retail investors should not rush to sell stocks right now. They should wait to see the group's future investment projects and new business plans before making a decision," said Mr Prakit.
The energy business in Thailand may be saturated, so Gulf has been looking for new businesses that have better opportunity to grow and sees that both digital and communications have growth opportunities and will head in that direction, he added.
Asia Plus Securities (ASPS) also recommends investing in Gulf for long-term growth. Gulf announced a restructuring of its shareholding through the transaction. Their amalgamation means both Gulf and InTouch cease to be legal entities.
The companies offer a conditional voluntary tender offer of AIS at the proportion of 36.25% at the offer price of 216.3 baht per share and of Thaicom at the proportion of 58.86% of the offer price of 11 baht per share.
For holders of AIS and Thaicom shares, ASPS views that the offer price of 216.3 baht for AIS and 11 baht for Thaicom is not tempting because it is lower than the market price. Therefore, it is not recommended to accept the tender offer.
According to ASPS, for those who currently hold shares in InTouch and/or Gulf, there are two options. First, if they want to exchange shares for those in the new company, they must hold shares until the second quarter of 2025.
Second, if they do not want to exchange shares for the new company, they have to sell their shares in the market before the amalgamation process starts. This is because the original companies will be delisted from the stock exchange.
For those who currently do not hold shares in InTouch or Gulf, if they want to hold shares in the new company, it is recommended to buy Gulf in order to convert it into the new company.
Based on the current stock prices of both InTouch and Gulf and the share conversion rate, the conversion of shares from Gulf to the new company has lower costs than converting from InTouch shares to the merged entity.
"We recommend gradually accumulating and investing in Gulf that will see strong growth both in the short term and in the long term," ASPS said.