Capricorn Energy should abandon its proposed merger with NewMed Energy and opt instead to liquidate its assets, a shareholder has said.
Irenic Capital Management has a 1.5% stake in Capricorn. The shareholder said Capricorn had made the right choice in abandoning its deal with Tullow Oil, but that the new merger plan was “equally unwise and disappointing”.
The NewMed deal is “profoundly unfavourable to Capricorn shareholders”, a letter from Irenic has said. The agreement undervalues Capricorn’s assets.
Breaking Capricorn up and selling its assets would provide 40% more value than the new merger.
NewMed offered an all-share agreement that would give Capricorn shareholders 10.3% of the company, plus a special dividend of $620 million.
Irenic said the NewMed deal was worth £2.54, of which £1.65 was the dividend and £0.88 was the NewMed stake.
Liquidating Capricorn would provide £3.5 for shareholders, Irenic said. The activist said that, according to its calculations, the company’s cash holdings were worth £2.16 per share – more than the proposed special dividend.
The NewMed merger asks shareholders to “give up a meaningful chunk of its cash”. Furthermore, NewMed’s assets have a number of risks associated, that Irenic does not see from Capricorn’s portfolio.
Capricorn’s assets do not have this risk, it said. It has three contractual earn-outs. In the UK North Sea, on the Senegal asset sold to Woodside Energy and it is due to make a payment to Shell for its Egyptian assets. All told, these have a value of $221mn, the activist said.
It went on to say the Egyptian assets were worth $425mn, up from the $323mn Capricorn paid a year ago.