DUBLIN-LISTED oil and gas explorer Petroceltic is to merge with Melrose Resources in a deal that will add the British exploration company’s cash-generating production to Petroceltic’s development portfolio.
This, according to Petroceltic, will create a balanced portfolio, and will transform the company’s portfolio from concentration in a single asset to a diversified yet regionally-focused company.
Petroceltic has licences in Algeria, Italy and Kurdistan, while Melrose is focused on Egypt, Bulgaria, Romania and Turkey.
The combined group, which will retain the Petroceltic name, will be headquartered in Dublin.
Petroceltic is listed on the junior market of both the Irish Stock Exchange (ISE) and London Stock Exchange (LSE), while Melrose is on the main market of the LSE. Following the merger, the group expects to apply to list on London’s main market, and will also “consider” a dual listing on the ISE “as soon as reasonably practicable thereafter”.
Petroceltic shareholders will take a controlling stake in the new company, holding 54 cent, while Melrose will have a 46 per cent share. The group will have a combined market cap of £351 million (€447.7 million) and 170 employees.
Brian Ó Catháin will stay on as chief executive of the new group, with Melrose chief executive David Thomas acting as chief operating officer, and Tom Hickey of Petroceltic taking on the role of chief financial officer.
Robert Adair, current executive chairman of Melrose, will assume to role of non-executive chairman of the new company for at least 18 months, and will take a 23.5 per cent shareholding in the new business, with Hugh McCutcheon, current non-executive chairman of Petroceltic, acting in a non-executive deputy capacity. Speaking yesterday, Mr Ó Catháin said Petroceltic had been in the market for an acquisition since 2007 to maximise the value of its Algerian assets. “We could have done it organically, but this combination leaps us forward about five years.”
He said Melrose was “a good fit” because while Petroceltic was of a much bigger scale in terms of reserves Melrose’s production capabilities were more developed. It also produced cash.
“They bring the cashflow to create the funding to bring those assets into production,” said Mr Hickey.HSBC, an existing lender to Melrose, will provide the new group with a $300 million facility for 18 months, but a larger facility will have to be put in place then.
As part of the deal Melrose shareholders will receive 17.6 new Petroceltic shares for every Melrose share they currently hold, while a special dividend of 4.7p per Melrose share will be paid by Melrose to its shareholders.
The deal values each Melrose share at 148.6p, and the company at £170.4 million, representing a premium of approximately 9.7 per cent to Melrose’s closing price of 135.5p on August 16th. Gerry Hennigan, an analyst with Goodbody Stockbrokers, said the deal would provide “greater scale and thus enable the group to fund and develop the assets in a more timely and efficient manner”.
