New doubts over Tullow-Capricorn merger
The proposed merger between Africa-focused explorers Tullow Oil and Capricorn Energy has been thrown into doubt after the latter's management revealed it was considering bids from alternative suiters, responding to shareholder dissent over the value of Tullow's offer.
"The board continues to believe that the proposed merger with Tullow can deliver significant long-term value for shareholders through creating a leading, Africa-focused energy company," explained Simon Thomson, CEO of Capricorn Energy, following its half-year financial update September 6.
"The board is also mindful of the impact of external factors and market conditions and is, as always, assessing all options to maximise value for shareholders. The company is exploring a number of expressions of interest relating to alternative transactions, and is engaging with those parties expressing interest to evaluate potential outcomes."
The two companies agreed June 1 to a combination that would see Tullow shareholders receive a 53% equity share in the merged business, Capricorn investors holding 47%.
The merger would create a supercharged African upstream portfolio encompassing Capricorn's upstream profile in Mauritiana, Egypt and Surinama, and Tullow's Jubilee and TEN oil projects offshore Ghana, where Tullow recently revealed it is looking for gas.
Before closing the deal, both sides need to secure investor approval in the form of a majority vote counted on the basis of shares cast, and typically held at an extraordinary general meeting.
While Capricorn's management are still officially behind the deal, they have struggled to get the benefits across to company shareholders. Critics point out its cash holdings contrast with Capricorn's debt-laden balance sheet, raising concern Capricorn money will be used to pay down Tullow loans. Capricorn Energy's cash pile at the end of June amounted to $631mn, versus $2.1bn in loans reported by Tullow at the end of the 2021 financial year.
In a letter published August 9, Capricorn private equity investor Palliser Capital demanded that the board terminates its support.
"Rather than the touted "merger of equals", the proposed merger appears to us to be a poorly disguised nil-premium takeover of Capricorn by Tullow through which Capricorn's substantial net cash balance, available after years of arbitration, would be applied towards repaying Tullow's junk-rated creditors, with zero value attributed to Capricorn's remaining high-quality and unencumbered assets," Palliser wrote, "We believe this outcome falls far short of what Capricorn's long-suffering shareholders deserve."