Capricorn Energy PLC (LSE:CNE, OTC:CRNZF) has released an open letter to shareholders as it seeks to promote its proposal to pay out a special dividend and merge the remainder of its business with NewMed Energy.
It comes as the board is being challenged by activist shareholder Palliser Capital, which has called for the replacement of Capricorn’s management team and is expected to oppose the proposed combination with Israeli-based NewMed.
Previously, in October, a proposed merger between Capricorn and Tullow Oil was called off.
Palliser holds a 6.6% shareholding in Capricorn and in October issued a statement in which it described the NewMed proposal as "another one-sided deal that does not reflect the company’s intrinsic value" and urged Capricorn’s management to recognise that “it need not be a forced seller".
Alternatively, in the absence of a superior deal, Palliser put forward a ‘value optimisation plan’ which would see the current standalone company continue and seek to increase its intrinsic value.
Today, Capricorn’s written retort described the plan put forward by Palliser as being “based on an overstated value of Capricorn on a standalone basis, due to a reliance on outdated and incorrect facts and assumptions”.
Palliser also underestimates the costs and challenges associated with optimising the Egyptian fiscal terms, according to Capricorn. The London-listed oil firm added that the Palliser proposal does not reflect the time and costs which would be involved in executing its plans.
“Our analysis concluded that pursuing this plan would be likely to deliver less value with higher risk over a longer execution period,” Capricorn said in the statement.
At the same time, Capricorn’s management reiterates its support for the NewMed merger.
It noted that it extensively reviewed a range of strategic alternatives over the past year, including mergers, liquidations, breakups and potential modifications to the company's strategy, in order to maximise value for shareholders.
Capricorn said the merger would give shareholders exposure to what would be the largest gas-focused, UK-listed energy company on the London Stock Exchange's premium segment.
It proposes to pay out some US$620mln to Capricorn shareholders prior to the combination.
Subsequently, the new company would then be forecast, according to Capricorn, to generate some US$3bn in free cash flow between 2023 and 2027 from existing assets and able to return 30% back to shareholders. It would meanwhile seek to double production from a portfolio of development projects by 2030.
In terms of process, Capricorn said it now expects to give notice for the EGM that Palliser has requisitioned by 9 January, for the meeting to take place on 1 February.
Capricorn, meanwhile, urged shareholders to carefully review the materials contained within today’s open letter.
“We have real concerns that shareholders who rely on the plan, without understanding the material risks and errors in its analysis, will likely be voting for value destruction,” it said.