Capricorn Energy executives travel the world. The London-listed energy group said yes to becoming an Africa champion after Tullow Oil’s $1.4bn offer in June. On Thursday, it decided that the eastern Mediterranean looked more its thing.
Interloper NewMed, an Israeli-listed natural gas producer, has offered the equivalent of 271 pence per share in an all-stock deal. That is a 19 per cent premium to the three month average share price for Capricorn. As it stands, the deal trumps Tullow’s offer — and not just on price.
For one, NewMed appears to be paying 29 per cent more than Tullow’s original all-share offer. Moreover, this is no pretend merger of equals. NewMed will have nearly 90 per cent of the combined group, with Capricorn shareholders keeping the balance.
Some shareholders complained that the Tullow deal was a rights issue in disguise. The explorer was dogged by over £3.1bn of net debt, as of June. Capricorn, on the other hand, sits on over £700mn of net cash. While Tullow had promised to give some of that back to shareholders, some hedge fund holders of Capricorn stock wanted more.
They will get that with NewMed, which has promised to return $620mn (£564mn) as a dividend to shareholders. Moreover, the deal, which is set to close in the first quarter of 2023, requires only a majority of shareholders to agree. Tullow’s had a higher threshold of 75 per cent.
But whereas Capricorn shareholders — ending up with 43 per cent of the new company — would have had to believe in Tullow’s prospects, with NewMed they can take a more opportunistic stance. Not that NewMed has nothing to offer. It owns over 45 per cent of Leviathan, a 22tn cubic feet natural gasfield off the coast of Israel. NewMed’s healthy cash flow comes from selling its gas there and into Jordan and Egypt. Capricorn also has oil and gas assets in the latter.
Tullow will not wish to rehuddle with its bankers. But Capricorn’s shareholders should cuddle up to this latest offer.
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