THE LARGEST SHAREHOLDER in Irish oil company Petroceltic has made an offer to buy the explorer for £6.42 million (€8.1 million), a fraction of what it was worth just over a year ago.
Sunny Hill Ltd, a unit of Swiss hedge fund Worldview Capital Management, announced this morning that it would pay 3p per share to acquire the Dublin-based firm. Some 90% of Petroceltic’s shareholders would have to accept the offer for it to succeed.
The bid represents a discount of more than 80% on the stock’s closing price on Thursday. A premium is usually offered when one company is trying to buy another.
The discount is even more staggering compared to the company’s value less than a year and a half ago.
£491 million offer
In October 2014 Petroceltic’s share price jumped to 218p after a larger Irish-listed rival, Dragon Oil, announced it was considering making a 230p per share bid that would have valued Petroceltic at about £491 million (about €627 million at the time of the bid).
Dragon decided to walk away from talks when oil prices fell from about $90 per barrel to $65, a five year low at the time.
Since then oil prices have collapsed, with crude oil hovering between $30 and $35 per barrel since the start of the year. The fall in prices has made it much more difficult for smaller oil companies, such as Petroceltic, to finance their operations.
As its debts mounted and revenues declined Petroceltic was unable to raise the finance needed to help fund development at its flagship project, a huge gas field in Algeria.
Mounting debts
In December Petroceltic announced a strategic review of its operations, effectively putting itself up for sale. It has debts of about €200 million and just €25 million in cash, most of which it is not able to access easily as it is held in local currencies. Most of its debts were invested in the development of the Algerian gas field.
The company has breached the terms of its borrowing agreement with its lenders, who are now keeping the explorer on a tight leash. Petroceltic has been granted bi-weekly waivers on its debt since the middle of January to prevent it from defaulting on its loans outright as management try and come up with a solution.
In the announcement this morning Sunny Hill, a vehicle set up by Worldview specifically to bid for Petroceltic, said it believes that the value of the Irish company’s assets is effectively near zero because of its unstable financial situation.
However, many analysts believe the bid will fail. UK stockbroker Cenkos said it thinks that shareholders will view the offer as a “deeply insulting” one, adding that the bid substantially undervalues Petroceltic’s Algerian gas field even if it was to be flogged off in as part of a fire sale.
Worldview has a stake of just under 30% in Petroceltic and is the company’s largest shareholder. It has been at loggerheads with management at the oil firm for over a year, claiming that Petroceltic is poorly run.
The hedge fund called an extraordinary general meeting last year to try and remove Petroceltic chief executive Brian O’Cathain, however it was voted down and O’Cathain survived.
Management at the Irish firm claimed several times that Worldview was trying to gain control of the company without paying a fair price, however this was always strenuously denied by Worldview.
Petroceltic issued a short statement today noting the offer from Sunny Hill and saying it would respond “in due course”. It added: “In the meantime, Petroceltic shareholders are urged to take no action”. Both Petroceltic and Worldview did not comment further when contacted.
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