Victorian-era “palliser” projectiles were designed to pierce the armour of an enemy. An activist fund of the same name has achieved that end against its target, Capricorn Energy. Palliser believes that the proposed $866mn acquisition by Israel’s NewMed Energy undervalues Capricorn.
On Tuesday the FTSE 250 oil explorer raised the white flag. Five of the company’s board members resigned, including its chair Nicoletta Giadrossi and chief executive Simon Thomson. Two more will leave later.
Capricorn’s board members jumped ship to avoid the ignominy of a cutlass point prodding them into an exit. A vote on whether to remove up to seven current board members on February 1 would probably have gone Palliser’s way, effectively ending the NewMed deal.
Even Capricorn’s promise of a $620mn special shareholder payout could not overcome the deal’s weaknesses, namely a high price and a muddled strategy. Would-be purchaser NewMed is an offshore Israel natural gas company attracted by Capricorn’s Egyptian gas assets, net cash of $760mn (as of September 2022) and premium listing on the London Stock Exchange.
Lex reckoned the takeover, transacted in shares, was a bad deal from the get-go. Shareholder Legal and General raised objections of its own last month. Proxy groups ISS and Glass Lewis also publicly backed Palliser, whose main aim is a big return of cash at a time when exploration shares command little value.
Despite the prospect of an increased shareholder payout, Capricorn’s share hardly moved on the news. That is telling. A glance at the largest UK-listed explorers including Tullow, another unsuccessful suitor of Capricorn, reveals they too simply bob along at a low ebb. Investors see this group as losers in the energy transition.
A board that has failed to sell its assets twice deserves replacement. Capricorn’s shareholders will hang on grimly for the cash run-off. Peers Tullow and Harbour must be glad that their net debts make them less attractive to activists such as Palliser.