Capricorn Energy bids to quell activist unrest over Israeli deal

The offer comes shortly after Edinburgh-based Capricorn, formerly known as Cairn Energy, dismissed calls from its third-largest shareholder to scrap the deal.

Palliser Capital, which holds a 6.6 per cent stake in Capricorn, argued that the proposed merger with NewMed undervalued the company and called for a general meeting to vote on its proposals to remove seven Capricorn directors from their supervisory roles, including chief executive Simon Thomson. It wants to replace them with six of its own nominees, who would be expected to terminate the deal with NewMed.

In a letter to Palliser, issued by Capricorn to the stock market yesterday, the board of the listed Scottish company stood by its assessment that the NewMed merger “would deliver more value to Capricorn shareholders than your plan”. And, with regard to the Palliser proposals, emphasised that it retains “concerns about some of its key assumptions and data”.

However Capricorn said yesterday that it was willing to "add a number" of Palliser nominees to its board before the general meeting on February 1, around the same time NewMed called for a meeting on its own resolutions – and plans to seek approval of the NewMed deal on that date.

Palliser reportedly criticised the decision to coincide the meetings, claiming that the move "effectively conflates two distinct matters: shareholder consideration of the NewMed transaction and shareholder consideration of proposed board changes."

A Palliser spokesperson told The Herald: “The poorly conceived NewMed transaction, like the Tullow deal before it, is symptomatic of the existing directors’ failure to provide long-suffering shareholders with the outcome they deserve.

"The offer to only add some of our nominees to the board appears to be little more than the latest manoeuvre by the existing directors, intended to limit shareholder optionality and protect their own tenures. It is Capricorn’s shareholders – not the existing directors – who should decide which candidates to appoint and, crucially, which directors should be removed.

"The existing directors are now attempting to rush the vote for the NewMed deal fully five months prior to its deadline, once again demonstrating their abject disregard for shareholders’ best interests.”

Capricorn's letter to Palliser stated: “We read with interest the statements in your letter of 6th January that the purpose of your requisitioned GM resolutions is to create ‘an opportunity to re-assess the merits and terms of the NewMed transaction’ and evaluate it against the alternatives, rather than necessarily to implement your alternative plan as originally indicated in the materials you published on 19th December.

“We are open to that path forward. We are ready to add a number of your nominees to the board promptly and well before the general meetings – there is no need to wait until next month. We want to reiterate our offer to meet with your nominees immediately so that we can expeditiously complete our corporate governance processes. We also are prepared to sign confidentiality agreements with your nominees so that they can review additional information.

“We stand ready to work together with you on this front.”

Capricorn said that it planned to issue the required notice to convene the general meeting on February 1. It said that, as set out in the notice, shareholders will be asked at the meeting to approved the proposed merger with NewMed on or around the same date as the requisitioned general meeting.

Palliser declared its opposition to the NewMed deal in October, stating that the planned merger undervalued Capricorn. While the proposed merger would see Capricorn shareholders receive a special dividend of $620 million, which with the exchange of shares would value the company at 271p per share, Palliser said Capricorn could be valued at 315p per share. This would represent “a 27% upside to the implied value of the NewMed transaction”.

But in a letter to shareholders last Thursday, Capricorn said Palliser’s analysis was based on “several outdated and incorrect facts and assumptions” that overstate the value of Capricorn on a standalone basis.

“We have real concerns that shareholders who rely on the plan [from Pallister], without understanding the material risks and errors in its analysis, will likely be voting or value destruction,” Capricorn said.

Under the proposed NewMed deal, the combined group would be listed in London under the NewMed name, with Capricorn chief executive Simon Thomson making way for NewMed boss Yossi Abu. It would have a portfolio of 11.8 trillion cubic feet of gas with production focused in Israel and Egypt, including NewMed’s 45% stake in Israel’s giant offshore Leviathan field.