Oil and gas producer Serica Energy shares spiked by more than 14% as it considers a bid to create a “leading independent North Sea champion” with rival Kistos.
Kistos Energy revealed it has been pushing for merger of “equals” with Serica in a bid to create a £1.04 billion.
However Serica had spurned the bid prompting Kistos, led by former Rockrose CEO Andrew Austin, to reveal details of the negotiations “in order to provide Serica’s shareholders with the opportunity to make their views known” regarding the attractiveness of the deal.
The board of Serica, led by chairman Anthony Craven Walker and and chief executive Mitch Flegg, have intially rejected a deal a cash-and-stock offer of 382 pence per share effort to create a combined entity and strengthen foothold in the North Sea.
In a statement this morning Serica “strongly advised” its stakeholders not to become involved in the situation as it is “considering its position”.
Shares closed 348p, a 14.1% rise from before negotiations were revealed.
Timeline of events
Representatives from Kistos – Mr Austin’s new energy sector investment venture – approached the board of Serica on May 16.
They asked to “engage in discussions regarding the merits of a combination of both companies”.
Two days later Serica’s top brass rejected the approach as it didn’t represent a “a specific proposal” to consider.
Then, on May 24, Kistos, which acquired its first UK North Sea assets yesterday, approached Serica again in writing with the proposed combination terms.
The company reiterated its confidence in the “strategic merits and potential value creation” of the merger.
Serica mulls ‘industrial logic’
At the beginning on the next month, June 1, Serica told Kistos in writing that it had again rejected the approach, though it acknowledged that it “can see industrial logic” of merging the company’s portfolios.
It also suggested entering into a “limited mutual exchange of information under a non-disclosure agreement” to explore a transaction.
Kistos accepted the suggestion to enter into an NDA and, once due diligence had been carried out, the firm received a proposal from Serica on July 1.
But it was rejected a few days later on the basis that it was not at a recommendable value and that none of Kistos’ board would be retained.
In a statement, the company said: “The board of Kistos believes that the terms of the Serica proposal are at the wrong price, with the wrong mix of stock and cash (given leverage capacity).
“The proposed combination by Kistos, in contrast, is at what the board of Kistos considers to be the right price, with the right mix of stock and cash, and with an intent to put in place the right combined team (drawn from both Kistos and Serica) to drive the Combined Company forward.”
Encouraging shareholders to act
Following Serica’s decision to reject the proposed merger, Kistos is now urging the company’s backers to encourage the board to “engage in constructive discussions” about the plans.
Under the current terms and conditions, Serica shareholders would own approximately 50% of the issued share capital of the combined business – they would also receive a “significant cash component”.
According to Kistos, the union of the two companies has strong industrial logic, could unlock significant value creation and achieve increased scale.
The combined company would also be a “market consolidator”, with an optimised balance sheet.
Serica’s main assets are the Bruce, Keith and Rhum fields, which produce via the Bruce platform around 210 miles north-east of Aberdeen.
Meanwhile Kistos completed the acquisition of a stake in a package of West of Shetland assets, including a 20% interest in the Greater Laggan Area, on Monday.
It is anticipated that, following completion of the merger, the new company would apply for the admission of its shares to a premium listing and to trading on the main market of the London Stock Exchange.
A FTSE 250 company
And at current market valuations, the new firm would rank among companies currently within the FTSE 250 index, Kistos said.
Based on the closing price of 463 pence per Kistos share, the proposals give an offer value of 382p pence per Serica share.
Kistos said: “The board of Kistos strongly believes that an experienced management team with a clear track record, combined with effective oversight from an experienced Board, is key to delivering the opportunities presented by the proposed combination.
“Kistos would envisage employing a meritocratic approach to selecting the best individuals for the combined company drawn from the management.”
Seric said: “Serica is considering its position. There can be no certainty that an offer will be made, or as to the terms of any such offer.
“A further statement will be made as appropriate. Serica shareholders are strongly advised not to take any action.”
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