Annual Reports & Accounts 2011

35 Business combinations

Acquisition of MIS

During the year, the Group acquired 100% of the shares in MIS. MIS is registered in the Republic of Panama and has operations in the Middle East and Kazakhstan. The principal activities of MIS are the upgrade and refurbishment of offshore jackup rigs, fabrication, assembly and new build construction for the offshore oil and gas sector, engineering and construction, safety and training services and other operating and maintenance services. MIS was listed on the Norwegian Stock Exchange. LIH made a voluntary offer to the shareholders of MIS on 19 May 2011 for a consideration of NOK 38 per share. LIH received acceptance from 99.76% of the shareholders of MIS before expiry of the offer on 29 June 2011 and announced that the offer was successful on 30 June 2011. Further, LIH also issued a cash cancellation offer to the option holders of MIS for cancellation of the options held by them and received acceptances from the majority of the option holders before expiry of the cash cancellation offer on 29 June 2011.

LIH settled in cash the consideration payable to the shareholders and option holders of MIS who accepted the voluntary offer and cash cancellation offer respectively on 13 July 2011. Further, LIH extended the mandatory offer in August 2011 to the remaining shareholders of MIS (0.24%) who did not accept the voluntary offer.

Control of MIS transferred to LIH on 13 July 2011. The consideration for transfer of shares of MIS and cancellation of options (Note 9) amounted to approximately USD 337.9m. Management has completed the purchase price allocation in accordance with IFRS 3 (revised) “Business Combinations”.

As a result of the acquisition, the Group is expected to reduce competition and increase its presence in new markets. It also expects to reduce costs through economies of scale and synergies. The goodwill of USD 180.5m arising from the acquisition is attributable to acquired customer base, work force and economies of scale expected from combining the operations of the legacy Group and MIS.

The following table summarises the consideration paid for MIS and the fair value of the assets acquired and liabilities assumed at the acquisition date:

Cash flow on business acquisition:

	USD’000
Cash paid for the acquisition*	337,864
Cash acquired from MIS	(15,647	)
Net cash outflow for the purpose of cash flows	322,217

*Net of basis adjustment of USD 10.2m with respect to three foreign currency forward contracts to hedge the NOK exposure (Note 32).

	USD’000
Recognised amounts of identifiable assets acquired and liabilities assumed:
Property, plant and equipment (Note 17)	26,010
Investment in joint ventures (Note 20)	4,638
Trade name (included in intangible assets) (Note 18)	22,335
Customer relationship (included in intangible assets) (Note 18)	19,323
Leasehold right (included in intangible assets) (Note 18)	8,338
Inventories	113,997
Trade and other receivables (net of provision for impairment of USD 4,967,000)	105,048
Loan to a related party (Note 25)	6,606
Derivative financial instruments (Note 32)	72
Cash and cash equivalents	15,647
Borrowings	(51,328	)
Trade and other payables	(96,961	)
Provision for employees’ end of service benefits (Note 31)	(16,400	)
	157,325
Goodwill on acquisition	180,539
Total purchase consideration	337,864

Acquisition-related costs of USD 10.5m have been charged to general and administrative expenses (Note 10) in the consolidated income statement for the year ended 31 December 2011.

The acquired MIS businesses have been comprehensively integrated with the Group’s existing businesses. It is therefore impracticable to determine the contribution that the MIS acquisition has made to revenue and profit since the date of acquisition. Similarly, it is impracticable to determine the contribution it could have made had it been consolidated with effect from 1 January 2011.