North Sea operator Serica Energy rejects £1bn merger proposal from Kistos
Oil and gas operator Serica Energy (Serica) has rejected a £1bn merger proposal from investment firm Kistos, which is looking to expand its presence in the North Sea.
The terms were the same as those in a previous offer made by Kistos in May which was also turned down by the company’s board.
Kistos made a cash-and-stock offer of 382p per share, representing a premium of 25 per cent to Serica’s latest closing price.
Serica, which produces around five per cent of Britain’s gas supplies, revealed it is considering its position and advised shareholders not to take any action.
The possibility of a merger between both parties has been mooted for several months, with Kistos turning down a separate bid from Serica last week.
Serica approached Kistos on July 1 with a cash-and-stock offer of 483 pence per Kistos share, which was rejected by the investment company’s board.
Kistos has a market capitalisation of £388.1m compared with Serica’s £839m – however, Kistos considers any potential merger to a deal between equals.
By contrast, Serica has laid out that none of the firm’s senior management or board members be retained as part of any deal.
Analysts suggest Kistos’ latest bid undervalues Serica, as it fails to take into account strengthening gas prices and the beginning of successful drilling operations at its North Eigg well in the North Sea.
Investec said: “However, the offer underplays Serica’s exposure to high UK gas prices and the North Eigg exploration result, in our view. We expect discussions to continue to make up the shortfall on overall value and therefore the balance of ownership in any combined entity.”
Stifel were dismissive of the prospective deal, and believed there was little rationale for a potential merger.
Managing director Chris Wheaton said: “We (politely) disagree with Serica’s board that there is industrial logic in combining the two businesses, except that both companies are gas producers, and believe the quality of the Kistos asset base to be inferior to that of Serica’s.”
The North Sea oil and gas sector is enduring a period of rapid transition, with energy giants offloading oil and gas fields to smaller firms and private equity owned groups hoping to squeeze out more and cheaper barrels from domestic fields.
It is also featured prominently in the UK’s supply security strategy, but is also subject to a further 25 per cent tax – the Energy Profits Levy – which leading industry bodies fear could dampen investment.
Shares of in both companies spiked following the news – with Kistos trading 5.18 per cent up on the FTSE AIM 100 Index at close of play, while Serica jumped 14.1 per cent on the FTSE AIM UK 50 Index.