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Capricorn Energy picks new suitor in NewMed Energy

Tullow Oil deal rejected after massive shareholder pushback: new deal sees big dividend handout and 10 per cent stake in NewMed Energy
September 29, 2022
  • Capricorn Energy board effectively hands cash to shareholders and assets to new buyer
  • NewMed Energy intends to keep London listing

This story has been updated to include Tullow Oil's response to the new deal

Shareholders in Capricorn Energy (CNE) that have fought a merger with Tullow Oil (TLW) now have a very different offer on the table: take a 171p-a-share dividend and hand over most of the company to Israeli oil and gas producer NewMed Energy (IS:NWMD). 

Capricorn said earlier this month it would listen to other options after months of shareholder anger at its backing of the Tullow merger, which was effectively handing the Africa-focused producer its hefty cash balance in exchange for greater development options. Tullow said it accepted the Capricorn board's change of heart and would not chase the deal further. 

Including a dividend of $620mn (£572mn), the new board-backed offer values the company at 271p a share, or $958mn. Capricorn’s board had previously backed the merger with Tullow at a valuation of 190p. In the new deal, shareholders would end up with 10 per cent of the combined company, to be called NewMed Energy. 

NewMed, which posted an operating profit of $318mn in the first half, is valued at around £2.8bn. The combined business would produce around 110,000 barrels of oil equivalent per day (boepd), with around 80 per cent of that gas. Given that Capricorn's cash balance would largely be handed to shareholders, the combined group will have net debt of around $2bn, according to a Stifel estimate. 

Under the new arrangement, the combined company would hold onto its London listing and be headquarted in the UK. Capricorn chief executive Simon Thomson would be chair and NewMed boss Yossi Abu would remain in the top job.

Analyst Chris Wheaton said a question mark remained over the need to "obtain tax rulings" from the Israeli Tax Authority for the deal to go ahead. "We would like more clarity on this as NewMed is structured as a partnership, which may have tax implications on conversion to a plc structure such as through this transaction," he said. 

Last month, Jamie Sherman, co-chief investment officer at Kite Lake Capital, which has a 7 per cent interest in Capricorn, told Investors' Chronicle the company should launch a strategic review to gauge third-party buyer interest or "return the bulk of the cash to shareholders" from both an India arbitration award and 2023 contingent payments from North Sea and Senegal divestments.

This story has been updated to include Tullow Oil's response to the new deal