Capricorn Energy issued a fresh defence of its a proposed merger with NewMed Energy yesterday, saying a call by its third biggest shareholder to scrap the deal was based on “incorrect facts and assumptions”.
In an open letter to shareholders, the board of the oil explorer invited Palliser Capital, a hedge fund which holds a near 7 per cent stake, to review its planned merger with the Israeli company, weeks after Palliser pushed for a board overhaul to block the deal.
Several investors have joined Palliser in opposing the merger with NewMed that would create a gas producer focused on Israel and Egypt when Europe is looking for non-Russian gas, saying it undervalues Capricorn.
Palliser wants the takeover blocked and Capricorn to remain independent while returning capital and has called for an extraordinary general meeting to vote on the replacement of much of the board.
In a lengthy rebuttal, Capricorn said that the certainty provided by NewMed would provide at least $120 million more of a short-term return than the alternative proposed by Palliser.
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Capricorn, which was founded in 1980 and listed in 1988 as Cairn Energy, dropped a proposed tie-up with Tullow Oil in September last year after shareholder disapproval and it then turned to NewMed, an Israeli group.
The oil explorer’s board said in the letter that Palliser’s plan was based on an overstated value of Capricorn as a standalone company and included “outdated and incorrect facts and assumptions”, including being able to return $620 million in cash to shareholders. Palliser’s plan would deliver up to $866 million in fair market value, compared with $920 million from the NewMed merger offer, the board said.
Capricorn has all of its production assets in Egypt, where it extracts the equivalent of 37,000 barrels of oil per day, as well as exploration interests in the UK, Mexico, Suriname and Mauritania. The main asset of NewMed, which is listed in Tel Aviv, is a 45.3 per cent stake in the large Leviathan gas field off Israel’s coast.
The enlarged company would have production equivalent to about 116,000 barrels of oil per day with a forecast that would double by 2030. Along with a $620 million cash dividend Capricorn investors would have about 10 per cent of the combined business.
Palliser believes the deal is “a quick sale at the wrong price” and has suggested Capricorn should be worth more than $1.1 billion. The investor has support from other large shareholders including Madison Avenue, Kite Lake Capital and Newtyn Management.
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Palliser said: “We reject the company’s value arguments and are concerned that this board appears intent on talking down the prospects of the company to justify their support for the flawed combination — in effect a backdoor London listing for NewMed.
“We are aware shareholders representing over 40 per cent of issued share capital have lost trust in the board.”
Capricorn Energy said it would issue notice next week for a general meeting on February 1 regarding Palliser’s call and expects to hold a vote on the NewMed deal around the same date.
Capricorn shares were flat at 245p.
