A challenge has been mounted to TransGlobe Energy’s plans to merge with Vaalco Energy, ahead of the crucial September 29 vote.
The two companies set out a plan to merge in July. At the time, the offer gave an implied valuation of $307 million. The deal would give Vaalco shareholders a 54.5% stake, and TransGlobe 45.5%.
Horizon Partners has come out against the plan, saying TransGlobe shareholders deserve more.
Vaalco’s shares have dropped since the announcement, Horizon has said, reducing the price offered to $231mn.
The activist investor said this “severely undervalues” TransGlobe. The company should sell off its Canadian business – raising $85-120mn – while continuing in Egypt. Selling its Canadian assets would allow TransGlobe to pay out a special dividend to shareholders, Horizon said.
Horizon’s complaints have found some support from TransGlobe investors. The investor has claimed that 20% of TransGlobe shareholders have come out against the Vaalco deal.
For the merger to go ahead, TransGlobe will need 66.6% of holders to support it.
Fighting back
TransGlobe’s board has roundly rejected the complaints. Horizon’s analysis is “spurious” and “misleading”.
TransGlobe chairman Dave Cook said shareholders should reject Horizon’s plan, accusing the investor of “short-termism and financial engineering”. The plan would be “disruptive to TransGlobe’s business strategy and have negative consequences for the company, its stakeholders and shareholder value”.
The board continues to support the deal, Cook said, as does proxy advisory ISS.
The Canadian assets would not secure the price Horizon has advised, without further drilling, and making TransGlobe a smaller company would provide new challenges.
Horizon has also criticised Vaalco. The company’s shares a “speculative and poor form of consideration as their value is highly uncertain”, Horizon said. “TransGlobe is a significantly more valuable company than Vaalco, according to the relevant tangible comparable metrics”.
TransGlobe disputed this suggestion. Vaalco has “long and highly successful track record of consistently replacing and growing its reserves in Gabon”, the company said. Horizon’s comparison of Vaalco and TransGlobe “reflects an incomplete understanding of the valuation of these oil and gas companies”.