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(Alliance News) - Capricorn Energy PLC on Thursday proposed a merger with NewMed Energy Ltd Partnership as it withdrew its recommendation for the previously agreed combination with Tullow Oil PLC.
Under the arrangement, Capricorn will acquire all of the partnership interests in NewMed in exchange for new Capricorn shares. The exchange ratio will be 2.33 new Capricorn shares for every NewMed participation unit.
The combination will mean Capricorn shareholders hold 10.3% of group's share capital while NewMED unitholders will hold 89.7% of the share capital. The company will trade under the name NewMed Energy, and it expects to retain its premium listing on the London stock exchange.
The merger will create one of the largest upstream energy independents listed in London. Capricorn said that the new company will have a diversified portfolio of "high-quality producing assets" in Israel and Egypt underpinned by 45% interest in Leviathan, one of the world's "most attractive" gas fields. It will also have long-term contracts which provide strong cash flow visibility.
Under the transaction, Capricorn shareholders will receive a special dividend of USD620 million equivalent to GBP1.72 per share.
Recently, Capricorn - formerly known as Cairn Energy - returned more than USD500 million to shareholders following the receipt of a long-awaited tax refund in India.
The merger exchange ratio values Capricorn, on an ex-dividend basis, at USD338 million or 99 pence per share, a 46% premium to the theoretical ex-dividend price on September 28. The ex-dividend price is the price of a stock without the value of the next dividend payment.
The expected total value of the transaction to shareholders is equivalent to 271 pence per share, a 13% premium to the closing price on September 28.
Shares in Capricorn were trading 4.3% higher at 249.90 pence each, giving a market capitalisation of just over GBP800 million.
Chair Nicoletta Giadrossi said: "The board has engaged in a robust and dynamic process to evaluate options for Capricorn and considered a broad range of external factors and market conditions. The combination with NewMed and a cash special dividend represent the delivery of significant value for Capricorn shareholders. We believe this is a compelling transaction which combines near term value realisation with ongoing participation and value creation in a world class gas company."
The board unanimously supported the merger and as a consequence has removed its recommendation from the Tullow deal which it had recommended in June. Although it said it "continues to see merit in the Tullow combination", the NewMed deal offered a more "compelling opportunity to receive value from both upfront cash and via a residual interest in a MENA gas and energy gas champion."
Tullow shares were trading 2.4% lower at 43.36 pence on Thursday. The FTSE 250 company gave no immediate response to the Capricorn announcement.
By Chris Dorrell; chrisdorrell@alliancenews.com
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