Analysts believe it will continue to look out for M&A opportunities

PETALING JAYA: Shares in Wah Seong Corp Bhd tumbled yesterday on news the company had lost a bid to acquire long-time partner Socotherm SpA to a consortium led by a bigger rival.

It was previously reported that Wah Seong was the leading contender to buy the troubled Italy-based pipe coating company.

“While this news is a surprise, it does not have any impact on our earnings numbers as we did not factor in any contributions from Socotherm,'' CIMB Research's analyst Norziana Mohd Inon said yesterday.

ECM Libra Investment Research expects the market to react “negatively” to the disappointing news, but advises clients that “any price weakness is good time to buy” the stock.

Wah Seong's share price fell as much as 8.8% yesterday before it closed at RM2.31, down 19 sen, or 7.9% for the day. A total of 2.5 million shares changed hands.

A spokeperson at Wah Seong yesterday confirmed that Socotherm had “favoured” a proposal submitted by a consortium led by the world's biggest pipe coater, Bredero Shaw, and two private equity funds, 4D Global Energy Advisors of France and Sophia Capital of Argentina.

A successful bid for Socotherm would have given Wah Seong immediate presence in Brazil, the Middle East and Gulf of Mexico.

Despite the setback in Italy, analysts at CIMB and ECM Libra believe that Wah Seong, backed by a healthy cash pile of RM471mil as at end of last year, will be continue to be on the look-out for future mergers and acquisitions opportunities.

Steady contract wins in the past quarters had kept Wah Seong's order book at a healthy RM1.4bil.

OSK Research has a candid view on the latest development, saying Bredero Shaw had been more keen to win the bid at “whatever price” in order to “wipe out” another competitor and at the same time prevent Wah Seong from growing in size.

All three research houses kept their “buy” rating on the stock with unchanged target prices of at least RM3.

Socotherm had previously filed for protection from creditors in August last year, and had made a net loss of 74 million euros and debts of 250 million euros.

In October last year, Wah Seong bought out Socotherm's 32.5% stake in PPSC Industrial Holdings Sdn Bhd for RM76mil to raise its stakes to 100%. Socotherm was Wah Seong's partner in PPSC for the past 19 years.

Foreign press reports yesterday revealed that the Bredero Shaw-led consortium would eventually hold a 95% stake in Socotherm, with Bredero Shaw holding a 40% interest for an estimated price of 30 million euros. The completion of the takeover is subject to a number of conditions, including approval of the Italian court supervising Socotherm's restructuring process as well as the approval of Socotherm's creditors.