The National Marine Dredging Company received an offer from the shareholders of the National Petroleum Construction Company to combine the two companies.
The deal, which would effectively be a reverse takeover, would see NPCC's assets transfer to NMDC, which is listed on the Abu Dhabi Stock Exchange. In return, NPCC's shareholders would receive convertible instruments which, once converted, would give them a 69.7 per cent stake in the combined entity.
The combination of the two companies would "create a leading integrated oil & gas and marine services" contracting company in the Middle East and North Africa, serving both the regional and South Asian markets, according to a statement from NPCC's ultimate parent, state holding company ADQ.
“As one of the largest pan-regional EPC [engineering, procurement and construction] players, this transaction will create a larger, more diversified and financially flexible national champion," Khalifa Al Suwaidi, chief investment officer at ADQ, said.
The deal also allows for a rationalisation of ownership, as ADQ has interests in both firms. It is a significant shareholder in NMDC and owns NPCC through Abu Dhabi General Holding Corporation, also known as Senaat.
The companies generated collective annual revenue of Dh8.8bn last year, according to ADQ.
A merger would also unlock significant value through "increased scale, revenue diversification, cost synergies and increased resilience to market cycles", the statement said.
"We are excited about the significant opportunity that can be created via this transaction, driving performance and growth to generate value not only for shareholders, but the UAE as a whole," Mr Al Suwaidi said.
NMDC will issue a convertible instrument to NPCC shareholders, converting into 575 million ordinary shares in NMDC, or 69.7 per cent of the combined entity, it said in a filing to the Abu Dhabi Securities Exchange on Sunday.
The converted shares would be priced at Dh4.4 per share, implying an equity value to NMDC of Dh1.1 billion. The offer is subject to regulatory approvals and there is no certainty at this time that a deal will be concluded, NMDC said.
"The board of NMDC will consider the transaction proposed by the NPCC shareholders before making any recommendation to shareholders," the marine dredging company said.
If the two parties reach an agreement, NMDC will hold a shareholder meeting during the second half of 2020 to vote on the transaction, it said.
ADQ said it anticipates the deal closing by the end of 2020, subject to shareholder and regulatory approvals. If a deal is agreed it will consider increasing the free float of the combined group's shares through a follow-on public offering at "a later date", Mr Al Suwaidi said.
NMDC's share price jumped on the news, closing 14.4 per cent higher at Dh5 per share on Sunday.
NMDC is a contractor for dredging, land reclamation and marine civil construction.
Its operations in the Middle East span sectors such as energy, sea trade and tourism. Its projects include Corniche Beach development, Yas Island beach works and dredging work on Egypt's New Suez Canal, according to its website.
NPCC is an engineering, procurement and construction contractor that provides services to the offshore and onshore oil and gas sector. It has projects with Saudi Aramco and Adnoc.
Earlier this year, NPCC was fully acquired by ADQ, which bought a 30 per cent stake in NPCC from minority shareholder Consolidated Contractors International Company for an undisclosed sum.
ADQ was founded in 2018 as Abu Dhabi Developmental Holding, but was rebranded and expanded in March this year when it was given responsibility for a broader portfolio of companies, including NPCC's parent Senaat.
It now has a portfolio of more than 90 companies in 11 sectors of the emirate's economy, according to its website. These include Abu Dhabi Airports, Abu Dhabi Ports, Etihad Rail, the power and water utility Taqa, Emirates Steel and the emirate's stock market, Abu Dhabi Securities Exchange.
ADQ’s mission is to act “as a national champion on behalf of the government to maximise the performance and value creation by each of our portfolio companies”, chief executive Mohamed Alsuwaidi said at the time of its rebrand in March.