UK markets close in 1 hour 16 minutes
  • FTSE 100

    7,048.89
    -37.57 (-0.53%)
     
  • FTSE 250

    17,559.04
    -263.11 (-1.48%)
     
  • AIM

    814.25
    -5.59 (-0.68%)
     
  • GBP/EUR

    1.1438
    -0.0050 (-0.43%)
     
  • GBP/USD

    1.1275
    -0.0200 (-1.74%)
     
  • BTC-GBP

    17,626.39
    -349.98 (-1.95%)
     
  • CMC Crypto 200

    449.76
    -8.65 (-1.89%)
     
  • S&P 500

    3,734.43
    -56.50 (-1.49%)
     
  • DOW

    29,969.14
    -347.18 (-1.15%)
     
  • CRUDE OIL

    85.96
    -0.56 (-0.65%)
     
  • GOLD FUTURES

    1,709.70
    -20.80 (-1.20%)
     
  • NIKKEI 225

    27,120.53
    +128.32 (+0.48%)
     
  • HANG SENG

    18,087.97
    +1,008.46 (+5.90%)
     
  • DAX

    12,529.74
    -140.74 (-1.11%)
     
  • CAC 40

    5,986.86
    -52.83 (-0.87%)
     

Capricorn should ditch Tullow merger deal, Palliser says

·2-min read
FILE PHOTO: Workers walk past storage tanks at Tullow Oil's Ngamia 8 drilling site in Lokichar

By Shadia Nasralla and Sinead Cruise

LONDON (Reuters) -Capricorn Energy should ditch its proposed merger with Tullow Oil, investor Palliser has said in a letter seen by Reuters, describing it as "one-sided" and short of "meaningful strategic rationale".

"The Proposed Merger appears to us to be a poorly disguised nil-premium takeover of Capricorn by Tullow," said the letter which was dated Aug. 9 and signed by Palliser Capital (UK) Chief Investment Officer James Smith.

"We firmly believe that Capricorn's standalone value is at least 330 pence per share - representing a 50% upside to the current share price and implying that the Proposed Merger represents a value give-away of over $500 million," it said.

It also said the deal would damage Capricorn's ESG profile by increasing its oil-gas output ratio.

The deal would create a 100,000-barrel of oil equivalent per day, Africa-focused producer paid for with newly issued Tullow shares.

The new company would have a better leverage ratio of net debt to core profit than Tullow, allowing the combined group to step up spending on increasing output and pay a regular dividend, ending a payout drought for Tullow shareholders.

STRATEGIC REVIEW

Palliser joins investors Legal & General Investment Management and Kite Lake in criticising the deal and called for a strategic review at Capricorn.

Palliser holds a stake of more than 5% in Capricorn, Legal & General IM holds around 4%, while hedge fund Kite Lake has interests worth 6.7%.

Jamie Sherman, co-chief investment officer of Kite Lake, told Reuters he agreed with Palliser's analysis.

Tullow CEO Rahul Dhir said last month no changes were necessary for the merger plan, for which a prospectus is due in the fourth quarter.

Capricorn did not immediately reply to a request for comment. Tullow declined to comment. The boards of both firms have recommended the deal.

Capricorn shares rose 3.6% in early trading to 227.42 pence, while Tullow shares were up 1.8% at 52.75 pence. A European index of oil and gas firms was up 0.05%.

(Reporting By Sinead Cruise and Shadia Nasralla; editing by Kirsten Donovan and Jason Neely)