A leading corporate governance specialist has come out against Capricorn Energy's plans for a merger with Israel's NewMed Energy, giving its backing instead to a campaign to remove most of Capricorn's board of directors.
Proxy advisor Institutional Shareholder Services (ISS) said the proposed deal with NewMed lacked a "compelling strategic rationale" with an "apparent low valuation and substandard sale process". It has recommended shareholders vote against the deal on February 1 and cast their ballots in favour of board changes put forward by Palliser Capital that will be voted on later that same day.
READ MORE: NewMed merger cynics question 'intransigence' of Capricorn directors
"NewMed's proposal implies a change in control well below [net asset value], when investors could get exposure to most of the combined entity's equity story simply by buying NewMed shares," ISS said.
Citing a "pervasive loss of faith" in Capricorn's leadership, ISS added: "Despite billions in investments and divestments over a decade, we do not find evidence that Capricorn created any meaningful value for shareholders."
READ MORE: Palliser turns up the heat on Capricorn Energy
Edinburgh-based Capricorn – formerly known as Cairn Energy – agreed the deal with NewMed at the end of September, scrapping a previously-proposed merger with Tullow Oil in the process. The tie-up would create a company with a portfolio of 11.8 trillion cubic feet of gas, making it the largest gas-focused energy company listed in the UK.
Palliser is pushing to replace seven of Capricorn's nine directors – including chief executive Simon Thomson – with six of its own nominees. Capricorn maintains that it has explored all potential options to the NewMed merger, and has said that Palliser's claims that the deal undervalues the business are based on "incorrect facts and assumptions".
Shares in Capricorn closed yesterday's trading 3.6p higher at 244.8p.
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