London-listed Tullow Oil and Capricorn Energy, formerly known as Cairn Energy, have reached an agreement on the terms of a recommended all-share combination of Tullow and Capricorn to create what they say will be “a leading African energy company.”
The two companies revealed on Wednesday that it is intended that the combination will be implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act, where Tullow will acquire all of the issued and to be issued Capricorn shares. Under the terms of the combination, each Capricorn shareholder will be entitled to receive for each Capricorn share 3.8068 new Tullow shares.
On completion of the combination, Capricorn shareholders will hold approximately 47 per cent of the combined group and Tullow shareholders will hold approximately 53 per cent of the combined group.
As reported by Reuters, the all-stock deal between these two companies is valued at 656.9 million pounds or about $826.7 million.
Tullow-Capricorn merger rationale
The boards of Tullow and Capricorn believe the combination has a compelling strategic, operational, and financial rationale, with the ability to deliver substantial benefits to shareholders, host nations and other stakeholders.
“The combination represents a unique opportunity to create a leading African energy company, listed in London, with the financial flexibility and human resource capability to access and accelerate near-term organic growth, add new reserves and resources cost-effectively, generate significant future returns for shareholders, and pursue further consolidation,” the two companies said in the statement.
The combined group would create an African energy company with a diversified pan-African upstream portfolio underpinned by low-cost producing assets, with a deep portfolio of incremental high return investment opportunities in Ghana, Egypt, Gabon, and Côte d’Ivoire.
According to the two companies, pro forma reserves and resources of 343mmboe and 696mmboe with 2021A production of 96kboe/d position the combined group as one of the largest, listed independent African focused energy companies today.
New name & management
A name change is intended to take effect upon completion of the combination. The new name will not include the words “Tullow” or “Capricorn” and the two companies will consult with key stakeholders as the new corporate name for the combined group is considered.
Upon completion of the combination, it is intended that Phuthuma Nhleko, currently Chair of Tullow, will become Chair of the board of the combined group while Nicoletta Giadrossi, currently Chair of Capricorn, will become Senior Independent Director. Furthermore, Rahul Dhir, CEO of Tullow, will become CEO while James Smith, CFO of Capricorn, will become the CFO of the combined group.
After almost 11 years as CEO of Capricorn, Simon Thomson will step down as CEO on completion and will become Chair of the Integration Steering Committee to help with the integration of the two companies.
The board of the combined group will include a further five non-executive directors drawn from both companies, with two to be current Tullow non-executive directors and three to be current Capricorn non-executive directors.
The headquarters of the combined group will be at Tullow’s existing offices in London and it is intended that the new company will also retain premises in Edinburgh.
Commenting on the combination, Simon Thomson, Chief Executive Officer of Capricorn said: “This combination will allow the two companies to accelerate investment in new opportunities across the continent, while retaining a resilient balance sheet and delivering attractive returns to shareholders.”
The combination will be subject to, amongst other things, the receipt of any necessary antitrust or regulatory consents.
Rahul Dhir, Chief Executive Officer of Tullow said: “Our two companies are a perfect fit and this combination draws on the proud heritage of both Tullow and Capricorn to create a leading African energy company. With renewed focus and ambition, the combined group will have the financial flexibility to accelerate organic growth and pursue further opportunities as they arise, while creating value for shareholders and host countries alike.”