Tullow Oil shareholders are expected to lose a potential lifeline after the company’s proposed merger of equals with cash-rich Capricorn Energy fell through on Wednesday.
apricorn, which tentatively agreed to an all-share deal with the ailing Tullow in June, has instead proposed another merger with NewMed Energy after shareholders approved the original deal.
The failure of the proposal has left Irish-based Tullow empty-handed, just two weeks after CEO Rahul Dhir assured investors that with the support of both boards, the merger is on track.
Capricorn’s board of directors plans to unanimously recommend the deal with NewMed and voted unanimously to withdraw from the merger with Tullow.
A completed deal would have created a $1.9 billion energy company with assets diversified from Ghana to Egypt, bailing out Tullow from years of chronic underperformance, management departures and asset fire sales to avoid bankruptcy.
Capricorn’s shares rose as much as 8.9 percent in London, with Tullow falling as much as 5.5 percent after the announcement, signaling the relative divergence of assets since the move.
The new merger would make the combined company one of the largest independent upstream energy companies listed in London, according to a statement Thursday.
Under the terms, NewMed shareholders would own nearly 90 percent of the combined company, while Capricorn shareholders would own the remainder. NewMed will pay Capricorn shareholders a special dividend of $620 million.
“The Board has engaged in a robust and dynamic process to evaluate options for Capricorn, taking into account a wide range of external factors and market conditions,” said Nicoletta Giadrossi, Capricorn’s Chair. “We believe this is a compelling transaction that combines near-term value realization with ongoing ownership and value creation in a world-class gas company.”
Leaving Tullow “is not surprising given increasing valuation and strategic rationale concerns,” said Will Hares, a global energy analyst for Bloomberg Intelligence. “An Israeli offshore gas provider offers far more compelling operational, regional and gas synergies.”
More than a quarter of Capricorn shareholders said last month a proposed merger with Tullow was unsuccessful, the company was undervalued and they would vote against the deal.
One activist investor, Palliser, pointed out that two-thirds of Capricorn’s value was in cash and short-term receivables, which Tullow received at a greatly reduced price. James Smith, Palliser’s chief investment officer, said the deal undervalued Capricorn by $500 million, or two-thirds of its market value.
The new connection will combine NewMed, one of the largest gas producers in the Mediterranean, with Capricorn’s production and exploration portfolio in countries such as the UK, Egypt, Mexico and Suriname. The deal will create a “gas and energy champion” in the Middle East and North Africa, the companies said.
The transaction furthers NewMed’s expansion plans following a collaboration with Israel’s Enlight Renewable Energy Ltd. Beginning of the year.
“We share a shared vision for a disciplined capital allocation framework,” NewMed CEO Yossi Abu said in the statement. The company aims to “significantly increase our production while also expanding into the LNG market to meet Europe’s growing gas needs.”
Both Capricorn and NewMed shareholders are required to approve the transaction at their respective general meetings.
(additional reporting, Bloomberg)
https://www.independent.ie/business/irish/tullow-shareholders-lose-out-as-merger-partner-turns-to-new-suitor-42027366.html Tullow shareholders lose out as merger partner turns to new suitor