Capricorn Energy and NewMed Energy have announced a proposed merger.
The combination will result in Capricorn shareholders holding approximately 10.3% of the share capital of the group, with NewMed unit holders, together with NewMed's current general partner, holding in aggregate approximately 89.7%.
The group will trade under the name NewMed Energy and expects to retain its existing Premium Listing on the London Stock Exchange. The Israeli company intends to implement a listing of its entire issued share capital on the Tel Aviv Stock Exchange as soon as possible after completion. It is expected that FTSE indexation will also be maintained.
A cash special dividend of $620m would be paid to existing Capricorn shareholders, equivalent to £1.72 per share, immediately prior to completion.
The expected total value of the transaction to existing Capricorn shareholders is therefore equivalent to 271 pence per share, representing a premium of 13% to the closing price of 240 pence per Capricorn share on 28 September.
This is also a 36% premium to the closing price of 199 pence per Capricorn share on 31 May - the last business day prior to the date of the previously-announced Tullow Oil deal.
Earlier this month, Capricorn Energy's board stated they were “assessing all options” to the proposed £1.4bn “merger of equals” that was announced in June with Tullow. Its half-year report included a statement which explained that the company was exploring “alternative transactions”.
The Edinburgh-based company's board of directors now believes the new transaction is in the best interests of shareholders and intends to recommend unanimously that they vote in favour. Accordingly, the board has unanimously decided to withdraw its intention to recommend the Tullow merger.
While it is currently proposed that Capricorn chief executive Simon Thomson will become the transitional chair of the combined group, a search for an independent chair will be undertaken in due course.
As well as the chair, the board of the group will comprise Yossi Abu as chief executive, James Smith as chief financial officer and seven non-executive directors, with two expected to be representatives of the Delek Group, NewMed's principal unit holder, while five will be independent non-executive directors - two of which coming from the existing Capricorn board.
Thomson said: "This transaction delivers our shareholders a substantial capital return, together with an ongoing stake in a differentiated UK listed company, shaped for the future of the energy industry.
"The combined business will offer investors a gas business of scale, with the prospect of near-term growth, a dependable capital returns policy, and a compelling ESG narrative to support the energy-hungry markets of the Middle East, North Africa and Europe."
Abu stated: "By combining with Capricorn we are creating a leading MENA gas and energy company, whilst significantly benefiting the shareholders of both companies.
"With Capricorn, we have a shared vision on a disciplined capital allocation framework and a strategy to potentially significantly increase our production while expanding to the liquified natural gas market with the aim of supplying Europe's growing gas demand.
"The combination will play a pivotal role in the energy transition, through organic brownfield cost effective developments while delivering attractive returns to our shareholders."
According to a statement from both businesses, the deal is expected to create one of the largest upstream energy independents listed in London.
The combined group would have a diversified portfolio of oil producing assets in Israel and Egypt, underpinned by 45.34% interest in Leviathan, one of the world's most attractive gas fields.
"Long-term contracts provide strong cash flow visibility and downside protection, while retaining exposure to commodity price growth," according to the statement, along with an exploration portfolio across Cyprus, Egypt, Israel, the UK, Mexico, Mauritania and Suriname.
Nicoletta Giadrossi, chair of Capricorn, added: "The board has engaged in a robust and dynamic process to evaluate options for Capricorn and considered a broad range of external factors and market conditions.
"We believe this is a compelling transaction which combines near term value realisation with ongoing participation and value creation in a world class gas company."
Approval of the deal, which constitutes a reverse takeover under the UK Listing Rules, is conditional on, among other things: approval by both sets of shareholders, approval of the Israeli Minister of Justice, obtaining tax rulings from the Israeli Tax Authority, required regulatory and contractual approvals in relevant jurisdictions, required antitrust approvals, and both the Financial Conduct Authority and London Stock Exchange agreeing to admit Capricorn's enlarged ordinary share capital to listing on the premium segment and to trading on the main market.
Rothschild & Co, Goldman Sachs and Morgan Stanley are acting as financial advisers to Capricorn, while JP Morgan is acting as financial adviser to NewMed.
The expected date of completion is during the first quarter next year.
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