Edinburgh-based Capricorn Energy said on Thursday it is withdrawing its intention to recommend an all-share merger with Tullow Oil and said instead it will recommend to shareholders that Capricorn combine with Israel’s NewMed Energy.
A cash special dividend of $620 million is proposed to be paid to existing Capricorn shareholders immediately prior to the completion of the deal.
The deal would create an Israel-Egypt focused gas producer including NewMed’s stake in Israel’s giant Leviathan offshore field at a time when Europe needs non-Russian energy supplies.
The combination would result in Capricorn shareholders holding 10.3% of the share capital of the combined group and NewMed unitholders, together with NewMed’s current general partner, holding 89.7%.
Delek Group, NewMed’s principal unitholder which holds voting interests in 54% of NewMed’s units, has entered into an irrevocable commitment to vote its units in favour of the combination.
“The combined group will trade under the name NewMed Energy and expects to retain its existing premium listing on the London Stock Exchange,” said Capricorn, formerly called Cairn Energy.
“It intends to implement a listing of its entire issued share capital on the Tel Aviv Stock Exchange (TASE) to take effect on or as soon as possible after completion of the combination.
“It is expected that UK FTSE indexation will also be maintained.
“Under the terms of the transaction, Capricorn shareholders will receive a cash special dividend expected to be $620 million, equivalent to £1.72/share immediately prior to completion of the combination.
“The combination exchange ratio values Capricorn, on an ex-dividend basis, at $338 million or £0.99/share, a 46 per cent premium to the theoretical ex-dividend price on 28 September 2022 (being the last business day prior to the date of this announcement).
“The expected total value of the transaction to existing Capricorn shareholders is therefore equivalent to 271 pence per Capricorn share …
“The board of directors of Capricorn believes that the transaction is in the best interests of Capricorn shareholders and intends to recommend unanimously that Capricorn shareholders vote in favour of the resolutions to be proposed by Capricorn at the shareholder meeting to be held to approve the transaction.
“Accordingly, the Capricorn board has unanimously decided to withdraw its intention to recommend the Tullow combination.
“The board of directors of NewMed has confirmed its intention to recommend unanimously that NewMed unitholders vote in favour of the resolutions to approve the combination.
“Delek Group, NewMed’s principal unitholder, which holds voting interests in c.54% of NewMed’s Units, has entered into an irrevocable commitment to vote its Units in favour of the combination.
“The board of the combined group will have a clearly defined governance structure in line with the UK Corporate Governance Code.
“Whilst it is currently proposed Simon Thomson, the CEO of Capricorn, will become the transitional chair of the combined group, to provide continuity through the combination process, a search for an independent chair will be undertaken and it is intended all UK corporate governance principles will be complied with in due course.
“As well as the chair, the board of the combined group will comprise Yossi Abu as CEO, James Smith as CFO and 7 Non-executive Directors, with 2 expected to be representatives of the Delek Group and 5 expected to be independent non-executive directors (2 of which will come from the existing Capricorn Board).
“Accordingly, a majority of the directors of the board of the combined group, excluding the chair, will be independent.”
Capricorn 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.”
Capricorn CEO Simon Thomson said: “This transaction delivers our shareholders a substantial capital return, together with an ongoing stake in a differentiated UK listed company, shaped for the future of the energy industry.
“The combined business will offer investors a gas business of scale, with the prospect of near-term growth, a dependable capital returns policy, and a compelling ESG narrative to support the energy-hungry markets of the Middle East, North Africa and Europe.”
NewMed CEO Yossi Abu said: “By combining with Capricorn we are creating a leading MENA gas and energy company, whilst significantly benefiting the shareholders of both companies.
“With 2P & 2C reserves and resources of approximately 11.8 TCF, predominantly gas from Leviathan, low-cost and highly cash generative production, the combination creates a true regional energy champion.
“Secure, sustainable, and long-life cash flows will allow the combination to offer a compelling mix of capital distributions to shareholders and growth potential.
“With Capricorn, we have a shared vision on a disciplined capital allocation framework and a strategy to potentially significantly increase our production while expanding to the LNG market with the aim of supplying Europe’s growing gas demand.
“The combination will play a pivotal role in the energy transition, through organic brownfield cost effective developments while delivering attractive returns to our shareholders.
“On behalf of NewMed, I would like to thank all our stakeholders for their support for this highly attractive combination.
“With our new partners at Capricorn, we are extremely excited about the future.”