Capricorn investors want more from Tullow merger

The proposed all-share merger of Edinburgh-based Capricorn Energy and London-based Tullow Oil is facing increasing opposition from shareholders of Capricorn, formerly called Cairn Energy.

Capricorn shareholder Schroders this week became the latest big investor in the Edinburgh firm to declare it would vote against the merger in its current form.

Schroders’ head of UK and European Mid and Small Caps Andy Brough told Reuters that a fairer deal would see Capricorn shareholders get 70% of the combined entity.

The current merger plan, which sees 47% of the combined firm go to Capricorn shareholders, has also been criticised by other shareholders of the Edinburgh firm, including Madison Avenue and Legal & General IM.

Bloomberg has reported that more than a quarter of Capricorn’s shareholder base could vote against the deal.

The deal requires the support of at least 75% of Capricorn’s shareholders who cast ballots.

On September 6, Capricorn Energy said it was “exploring a number of expressions of interest relating to alternative transactions” to the merger with Tullow.

Under the deal announced on June 1, Capricorn shareholders would receive 3.8068 new Tullow shares for each Capricorn share held, with Capricorn shareholders to own 47% and Tullow shareholders to own 53% of the combined company.

Reuters calculated the value of that proposed deal at roughly £657 million.

Tullow Oil CEO Rahul Dhir said on Wednesday: “The board of Tullow remains fully committed to the merger with Capricorn which continues to be recommended by both the Tullow and Capricorn boards on the current terms.

“We firmly believe that the proposed merger has the potential for material value creation by implementing a combined business plan which accelerates investment in key projects and delivers very significant synergies.”

Tullow said on June 1 the proposed deal is a “merger of equals creating a leading African energy company” with a portfolio of investment opportunities in Ghana, Egypt, Gabon and Côte d’Ivoire.

It said the merged group would have a new name, yet to be announced.

Tullow chair Phuthuma Nhleko would become chair of the enlarged group, with Capricorn chair Nicoletta Giadrossi becoming senior independent director.

Tullow CEO Rahul Dhir would become CEO of the combined firm, with Capricorn CFO James Smith becoming CFO of the enlarged firm.

The board of the combined firm would include a further five non-executive directors, with two to be current Tullow non-executive directors and three to be current Capricorn non-executive directors.

After almost 11 years as CEO of Capricorn, Simon Thomson would step down as CEO and “will become chair of the integration steering committee to help with the integration of the two companies.”

Capricorn and Tullow said it is intended that the headquarters of the combined group would be at Tullow’s existing offices in London but also that the enlarged firm would also retain premises in Edinburgh “and through the application of a flexible work policy enable employees to operate from both premises.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.