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Tullow target Capricorn Energy looking at alternative bidders

The cash-rich takeover target said despite the directors backing the merger with Tullow Oil, the board is exploring alternative transactions
September 6, 2022
  • Shareholder anger over Tullow Oil merger has been significant
  • Capricorn boss Simon Thomson said original deal still stood but other options being explored

Capricorn Energy (CNE) is talking to other suitors despite still backing the merger arrangement with Tullow Oil (TLW) that would see its hefty cash holdings used to cover the larger company's sizeable debt pile. 

The Tullow deal equates to 190p a share for Capricorn shareholders, using the 3.8 new Tullow shares to be issued per Capricorn share, compared to Tuesday's price of 232p a share. 

Now, Capricorn chief executive Simon Thomson has said other options could be on the table. 

"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," he said. "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."

Capricorn reported a net cash position of $631mn (£545mn) as of 30 June after a $1bn payout from the Indian government. It has made significant portfolio changes already and is now focused on former Shell (SHEL) assets in Egypt.

The company also completed a $525mn tender off and buyback programme earlier this year from that cash injection. The income statement for the first six months were solely from its 35,000 barrels of oil equivalent of production from the new assets, however. This brought in $137mn in sales, because while gas prices have soared, Capricorn only sells to the Egyptian state operator at a fixed amount, missing the significant upside seen elsewhere in the industry. 

Last month, Tullow boss Rahul Dhir told Investors' Chronicle the shareholder benefits to the non-cash deal were "blindingly obvious". But Capricorn shareholders have expressed frustration, with one saying it was a "magic bean" deal where the oil and gas company would be swapping its cash for potential returns long into the future. 

The Tullow deal was expected to complete by the end of the year, although Capricorn shareholders are unlikely to back the deal in its current form. "The simple fact is, we don’t want Tullow paper,” Jamie Sherman, co-chief investment officer at Kite Lake Capital, said last month. The hedge fund holds almost a 7 per cent interest in Capricorn. 

We remain neutral on Capricorn given the uncertainty over its future, although do not expect the Tullow merger to succeed. Hold. 

Last IC View: Hold, 201p, 1 June 2022

CAPRICORN ENERGY (CNE)  
ORD PRICE:232pMARKET VALUE:£714m
TOUCH:231-232p12-MONTH HIGH:248pLOW: 168p
DIVIDEND YIELD:NILPE RATIO:2
NET ASSET VALUE:424ȼNET CASH:$631mn
Half-year to 30 JuneTurnover ($mn)Pre-tax profit ($mn)Earnings per share (ȼ)Dividend per share (ȼ)
2021**0.50-87.4-17.5nil
2022137-48.7-18.1nil
% change----
Ex-div:-   
Payment:-   
£1=$1.18 **2021 sales figures low as assets held for sale NB: Dividend figures do not include $257mn special payout from Q1 2021