Palliser Capital has joined criticism of Capricorn Energy’s proposed merger with NewMed Energy, saying it undervalues the Egypt-focused producer.
“The Capricorn Board and management team have run out of ideas and are throwing in the towel,” the investor said. The board have negotiated two deals, both of which “significantly undervalue” Capricorn. The deals both prioritise rewards for executive as the “expense of long-suffering Capricorn shareholders”.
Palliser has 6.6% stake in Capricorn, it reports.
The investor cited research from ERCE valuing Capricorn at $1.131 billion, or 315 pence per share. This is 29% more than Capricorn’s share price as of October 25 and 27% more than the NewMed offer.
The deal could see a payment of $30 million going to Capricorn’s senior executives, Palliser said. This is “truly jarring when assessed against the chronic underperformance, pervasive misallocation of capital, culture of excessive pay and track record of wasteful administrative spend that these same executives have been accountable for over the past decade”.
Capricorn does not need to sell under these conditions, Palliser said. If the company cannot find a better deal “then the company should stop wasting further shareholder resources and instead follow the proposed Value Optimisation Plan”.
Palliser’s plan claims to unlock Capricorn’s near term value and could boost its worth to 400 pence in the medium term.
The Palliser plan has two near-term moves. The first would be to return excess cash to shareholders, which Palliser reads the NewMed deal as saying there is at least $620mn.
The second step would be to realise the value of the contingent rights. This could either be through a sale at fair value or by distributing contingent rights to shareholders.
In the medium term, Capricorn should cut its administrative costs, to a level in line with its stake in the non-operated Egypt joint venture. The investor said Capricorn should also increase its focus on Egypt, through the contract optimisation process that a number of other investors have undergone.
Palliser’s criticism echoes many of the concerns raised by Irenic Capital Management, which has a 1.5% stake in Capricorn.
The investor criticised Capricorn’s merger plan with Tullow Oil in August.