Lamprell, an oil equipment and services company based in Dubai, plans to turn to shareholders for two thirds of the cash needed to buy out a competitor.
The proposed US$336.1 million (Dh1.23 billion) acquisition of Maritime Industrial Services (MIS), an oil services company based in Sharjah, is also to be financed through cash reserves and bank loans, according to a statement Lamprell issued to investors yesterday.
About $213.2m of the full bid amount is to come from a rights offer to shareholders, a popular method for companies to finance acquisitions.
"The share price reaction is a strong one today, which suggests that the market likes the deal," said Phil Lindsay, an analyst with ABN AMRO in London.
The buyout still needs to be formally approved by shareholders.
Shares of Lamprell, one of the 350 largest companies listed on the London Stock Exchange, were up more than 10 per cent yesterday, reaching 389 pence in intraday trading.
MIS, which is listed in Norway, recorded its biggest increase in 14 months, climbing to 37.7 kroner on the Oslo Stock Exchange.
The rights issue is to be backed by JPMorgan Cazenove, HSBC and Merrill Lynch. Shareholders will receive three shares for every 10 they own.
Lamprell, which expects the acquisition to be completed in July, said MIS would help it increase earnings per share "substantially".
"There is a strong complementary fit between Lamprell and MIS, enabling the enlarged group to pursue new opportunities with enhanced resource and technical competence," Nigel McCue, the chief executive of Lamprell, said in yesterday's statement.
"In particular, we see real competitive advantage in the companies' combined engineering offering as well as greater access to new business in the downstream and onshore sectors."
MIS offers Lamprell footholds in Saudi Arabia and Kuwait. Integrating the two companies is expected to cost about $6m.
"It's a case of tearing the fence down," said Mr Lindsay.
The acquisition is also to provide Lamprell with a bonus. MIS had been building a $160m jack-up rig when its client was struck by the financial crisis.
Only $26m is expected to be needed to complete the job, and Lamprell is expected to pocket $130m once construction of the rig has been completed next year.
