Serica Energy (SQZ ) has rejected a merger bid from Kistos (KIST ) that valued the company at £1.04bn.
The merger bid, announced by Kistos on Tuesday 12 July, contained a cash-and-stock offer of 382p a share, a 25% premium to Serica's stock price at last close.
While Serica rejected the bid, it recognised the utility of a potential future merger. "While Serica has stated that its Board "can see industrial logic in combining the portfolios of the two companies", the Proposed Combination has been rejected by the Board of Serica." said Kistos in a statement yesterday.
Kistos' 12 July statement further explained: "Accordingly, this announcement is being made by Kistos to urge Serica shareholders to encourage the Board of Serica to engage in constructive discussions with the Board of Kistos regarding the Proposed Combination."
Today, 13 July, Serica issued an update definitively stating it has rejected the offer as it "strongly believed it significantly undervalued the Company and its prospects and was not in the best interests of shareholders or other stakeholders."
Serica added that it "pro-actively seeks opportunities to utilise its strong balance sheet and operating capability to diversify its production portfolio and increase the scope for organic investments." and strongly advised its shareholders against taking any action. Serica, therefore, remains interested in a merger, but only on its own terms.
Serica's said terms were detailed in its own merger proposal, which was rejected by Kistos on 8 July. This ongoing cat and mouse game has now left investors in both companies in a state of uncertainty.
According to Kistos, Serica's proposal did not retain any of the Kistos' senior management, making it more akin to a takeover than a merger of equals. Additionally, Kistos said the bid undervalued its assets. The terms of the proposal were "at the wrong price, with the wrong mix of stock and cash", Kistos said.
"The board of Kistos continues to believe that there is compelling industrial logic in the combination of Serica and Kistos, and that the proposed combination would create significant value for shareholders of both companies," Kistos said in its 12 July statement.
To summarise the confusing series of events, both companies are interested in merging, but have failed to agree on terms. The last statement on the matter came from Serica, which confirmed it has rejected Kistos' offer, and elaborated on why it believed its own offer was the better option as it would "secure for both sets of shareholders the advantages of scale and diversity attained from combining the asset portfolios".
Just two days ago, Kistos finalised its acquisiton of 20% interest in Greater Laggan Area from French oil giant TotalEnergies, giving it long-coveted entry into the North Sea market. Serica is a North Sea-focused producer, currently supplying 5% of Britain's gas. The merger would consolidate these North Sea assets and make for a powerful competitor in the region.
The combined entity would have a £1.8bn market cap and "generate significant and resilient free cash flow, enabling the Combined Company to consider a sustainable dividend policy", Kistos said in its statement.
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