Mexico’s Alfa SAB and partner Harbour Energy Ltd. dropped their plans to buy Pacific Rubiales Energy Corp. after the driller’s largest shareholder spurned a takeover offer once valued at as much as $1.7billion.
Pacific Rubiales said Wednesday it would have “no further material obligations” to its former suitors after accepting their withdrawal. Alfa said its offer “correctly valued” Bogota-based Pacific Rubiales and had no plans to sweeten the price.
The pullout derails Alfa’s quest to become an oil company and take advantage of Mexico opening its fields to private producers for the first time since 1938. The maker of lunchmeat and car parts slumped 10% since being identified as a bidder in May, a sign of investor dismay even as Pacific Rubiales stakeholder O’Hara Administration Co. lambasted the $C6.50-a-share bid as too low.
“We see this as positive for Alfa,” Ana Sepulveda, an analyst at Invex Casa de Bolsa SA, said in a telephone interview in Mexico City. “The requirements from funds that held stakes in Pacific Rubiales were overvaluing the company.”
The original bid for Pacific Rubiales was about $2.1billion, or $1.7billion, when it was made in May. By Wednesday, the value had fallen to $1.6billion. The company’s shares are listed in Toronto as well as in Bogota.
Restarting Turnaround
Alfa’s exit means Pacific Rubiales executives now will have to restart a turnaround effort, according to Nathan Piper, an analyst at RBC Capital Markets. In a note, he estimated that the company is saddled with about $4.5billion in net debt and will lose 35% of current production when the license for its biggest field ends in 2016.
The rout in global crude prices erased 76% of Pacific Rubiales’s market value in the past year.
Pacific said in a statement that it would continue with its plans to reduce its debt and operating costs, and to divest non- core assets. It also will continue to pursue “Mexico energy opportunities” with Alfa as a partner.
The takeover plan had been set to go to Pacific Rubiales shareholders this week until Alfa and Harbour requested the vote be reset for July 28. O’Hara, the Venezuelan-led group that controls almost 20 percent of Pacific Rubiales, said the original bid was doomed to fail and said this week it had to be sweetened to more than C$9 a share before it would consider the bid.
O’Hara didn’t immediately respond to an e-mail and phone message after regular business hours seeking comment on Alfa’s retreat. Alfa holds about 19 percent of the shares.
“We thought our offer correctly valued Pacific Rubiales,” Alfa Chief Executive Officer Alvaro Fernandez said in a statement. “We are not willing to change our offer, therefore we are terminating the Arrangement Agreement. We remain committed to pursue opportunities in the Mexican energy sector and will decide on the alternatives we have.”
Harbour is an investment firm formed by Asian commodity trader Noble Group Ltd. and private-equity firm EIG Global Energy Partners LLC to invest in energy assets worldwide.