Neon Energy is set to merge with MEO Australia after it became involved in a takeover bid.
It is hoped the move will reduce overhead costs of the two companies, from $8.5million to $3.5million per year.
However, the companies warned their merger would result in job losses.
The company is expected to form with a net cash income of $37million and a board will be formed of the merged groups, comprising two directors from Neon, and two directors from MEO.
Neon had also been approached by Evoworld, but said the company provided “little information” and advised shareholders not to approve their offer.
Neon and MEO Australia have now entered into a Merger Implementation Agreement (MIA).
However Evoworld has also requisitioned a general meeting of shareholders to replace the current board with directors nominated by Evoworld, which will take place November 12.
Neon Energy has convened a general meeting of shareholders to consider whether to approve Evoworld’s bid.
Chairman of Neon, Alan Stein, said: “With the strong cash position of the merged group along with prudent use of gearing, we will be well placed to pursue existing opportunities within the portfolio as well as meaningful acquisition opportunities in an increasingly attractive market for E&P buyers.
“For a long period, the ASX has lacked junior E&P companies with sustainable business models and ownership of material production and cash flow.
“Through a disciplined approach to acquisitions and ruthless focus on costs, our goal is to materially enhance the net asset value of the group and create an attractive investment destination for shareholders seeking exposure to the E&P sector.
“We think this is in stark contrast to Evoworld’s offer to opportunistically acquire Neon shareholders’ equity and gain control of Neon at a discount to the company’s cash backing.”