Tethys Petroleum (LON:TPL, TSE:TPL) soared some more than a fifth after revealing it is set for a premium priced takeover by Nostrum (LON:NOG), as a new agreement has now been signed.
Nostrum has been one of a number of parties discussing potential takeovers and strategic investments in recent months. And it now has exclusivity until October 6 to make a formal offer to buy the company.
A newly signed - albeit non-binding - letter of intent has laid out the terms upon which Nostrum would acquire Tethys.
Nostrum proposes a share-based deal which would value Tethys at C$0.147, which represents a 63% premium to Tuesday’s closing price in Toronto.
Tethys shareholders would receive 1 new Nostrum in return for every 69.43 existing Tethys shares.
The LOI says both Nostrum and Tethys shall use “all commercially reasonable endeavours” to execute the deal.
“Tethys and Nostrum have agreed headline commercial terms on a proposed offer and an all important potential interim financing facility,” said John Bell, Tethys executive chairman.
“As a result, Tethys is working hard to finalise the implementation agreement for the proposed offer and the agreements for the Interim Financing until completion. The board aims to deliver this transaction and conclude the strategic review with a binding offer from Nostrum.”
In London, Tethys shares shot up 23%, adding 0.98p to trade at 5.23p, while in Canada the price was up 28% at 11.5 cents per share.
The next steps in the possible deal will rely on Nostrum securing governmental approvals as well as consent from Tethys’ joint venture partner consents in Kazakhstan, Tajikistan and Georgia. It must also get the backing of the Tethys directors that own shares, as well as three major shareholders.
Overall more than 75% of Tethys shareholders would have to agree to the proposed deal.
As part of the arrangement with Nostrum, the buyer has agreed to provide a US$20mln interim financing facility to Tethys.
This cash could, among other things, allow Tethys to make payments in relation to Tajikistan work obligations, interim capex programmes in Kazakhstan, and exploration programmes.
As is customary with such situations, Tethys warned that “there can be no certainty that any formal offer will be made by Nostrum or that the interim financing will be finalised, or as to the terms on which any formal offer might be made or any interim financing may be finalised.”
Tethys also warned that it does not currently have sufficient funding to meet its obligations over the coming twelve months - indeed, it has yet to pay the latest cash-call relating to Tajikistan which now must be paid by October 9 to avoid “very onerous remedies” – and as such the company said there would be significant doubt about its ability to continue as a going concern if the envisaged arrangements not proceed.