Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
AIM-quoted companies, Irish oil and gas firm Petroceltic International plc (LSE:PCI) and Scotland-based Melrose Resources plc (LSE:MRS) agreed to a merger to create a “regionally focussed independent oil and gas company”, the two companies disclosed today.
Merger talks, which caught some investors by surprise, had been in place since February 2012, following a confidentiality agreement signed by both Petroceltic and Melrose.
“The Boards of Petroceltic and Melrose believe that the Merger will create a regionally focused North Africa, Mediterranean and Black Sea independent oil and gas company with a balanced and diversified portfolio comprising production, development and high impact exploration assets,” the merger document stated.
Melrose has producing fields in Egypt and Bulgaria as well as exploration licences in Romania and Turkey, while Petroceltic banks on the potential of its oil and gas assets in Algeria, Italy, and the Kurdistan Region in Iraq.
Terms of the Merger
The deal, a reverse takeover according to AIM rules, offers 17.6 new Petroceltic shares for every Melrose share and an additional 4.7 pence special dividend to be given by Melrose to its’ shareholders, giving a premium of 9.7% to Melrose’s closing price of 135.50 pence yesterday.
Upon completion, Petroceltic shareholders will own 54% interest and Melrose shareholders will take the remaining 46% of the new oil and gas group, which now has a market value of £170.4 million.
Petroceltic’s current Chief Executive Officer, Brian O’Cathain, will become CEO of the new group while Robert Adair, Melrose’s Executive Chairman and majority shareholder, will sit as Non-Executive Chairman of the Board.
HSBC (LSE:HSBA), who also acted as financial adviser to Melrose’ Board, will provide US$300 million to fund the new group, which intends to move to a premium listing on the London Stock Exchange.
No Dividend
Shareholders of the newly formed exploration and production company will not be given dividend upon completion of the merger as profits will be used to fund Petroceltic’s gas development project in Algeria, which is expected to commence production by 2017.
Petroceltic cash position as at 31st December 2011 was at US$9 million; hence, combining with Melrose will enable to company to tap the US$196 million cash balance Melrose has, as of the same date.
Both Adair and O’Cathain hinted a win-win situation in respect of the merger as it will provide access to resource and enhance the long term prospects in the case of Melrose while giving funding options to take advantage of the potential value of assets in the case of Petroceltic.
Unfortunately, the market seemed to see the deal as not a good one, with over 26 million Petroceltic shares traded brought the share price down 7% to 7.6 pence, while Melrose shares were down 1.1% to 134 pence as of 1:45 PM GMT, after reaching 141 pence early in the morning.
