Following a proposal takeover bid offered by a “confidential, unsolicited, indicative and incomplete” third party for Roc Oil Company Limited (ASX: ROC), one of Australia’s leading independent oil and gas exploration and production companies, Horizon Oil Ltd (ASX: HZN), Australia’s energy company, saw its shares sink more than 6%. Roc’s share price, however, raised 7% on Wednesday reaching 60¢, Horizon finished at 7% down at 35.5¢. This fall is also linked to investors’ reaction to the possible failure of a prospect deal between the two Australian oil and gas companies. In fact, they announced that they entered into a Merger Implementation Deed (MID) in proposing an $800 million merger. They agreed to merge via a Horizon Scheme of Arrangement, the Merger, to create a Leading Asian E&P Company in bringing together two highly complementary E&P companies. This merger will be unanimously supported by both the ROC and Horizon Boards. The Merger Board is composed of three current Non-Executive Directors from ROC, four current Non-Executive Directors from Horizon. Mike Harding, current Chairman of ROC, will be Chairman of the merged group and Brent Emmett, current CEO of Horizon, will be CEO and Managing Director of the merged group. By supporting the Merger, both companies have cash flowing from existing oil fields to provide increased capacity in paying dividends and fund ongoing exploration and production.
This Merger is aimed at providing shareholders of the merged group with broader portfolio diversification especially Asian-focused portfolio and potential growth options, value realization and assets across China, PNG, Malaysia, Myanmar, Australia and New Zealand, thus reducing their risk profile. It will also consolidate the existing interests in the Beibu Gulf and Bohai Bay and put its operations on a stronger base. The Horizon and ROC Boards believe that the merged entity will face significant potential growth benefits to Horizon and ROC shareholders compared to each company on a standalone basis.
The combined group will have a market cap of about $800 million, with resources of 120 million barrels of oil equivalent (mmboe). Annual production (predominantly oil) will be around 5.5 mmboe, with assets across China, Papua New Guinea, Malaysia Myanmar as well as Australia and New Zealand.
Following the completion of the Merger, ROC shareholders will own approximately 42% of the merged entity and Horizon shareholders will own approximately 58%. That is, Roc’s value represents $385 million in the sharemarket and Horizon at $495 million. In other words, Horizon shareholders will receive 0.724 Roc shares for each Horizon share held.
Each company’s Chairman believes the Merger group will strengthen regional commitment and actively progress value growth in the Asian region.