Vaalco Energy (LON:EGY) has set out a plan to acquire TransGlobe Energy (LON:TGL) in an all-stock merger, valuing the latter at $307 million.
Assuming completion of the deal, Vaalco shareholders would have 54.5% in the company while TransGlobe’s would have 45.5%.
Vaalco said the deal offered a 24.9% premium to TransGlobe’s share price. The companies expect the deal to close in the second half of 2022.
TransGlobe shares are up around 22% today.
The aim, the companies said, was to create a “world-class African-focused E&P company”. It would have 19,100 barrels of oil equivalent per day of production on a net revenue interest basis, in Egypt, Gabon and Canada.
Combined proved reserves would be 32mn boe, of which 92% would be oil, with proved plus probable reserves of 51mn boe.
The company would target annual dividends of $28mn, around $0.25 per share.
Vaalco CEO George Maxwell said the deal was consistent with his company’s plan of expanding its African footprint.
“The respective portfolios complement one another well and result in a diverse, full-cycle asset base which materially increases our production, more than doubles our reserves, and significantly enhances our ability to generate meaningful cash flow,” he said.
The company would have no net debt, with cash on its balance sheet. It would also have the “size and scale to better fund and execute on a robust set of organic opportunities while delivering accretive long-term growth objectives”.
Growth plans
TransGlobe president and CEO Randy Neely also noted the benefits of such a deal. “The additional scope and scale of the combined entity will provide a larger platform, which will provide greater stability to TransGlobe’s practice of distributing cash to shareholders as well as growth investment in TransGlobe’s operations in Egypt and Canada.”
Vaalco’s Maxwell would remain as CEO of the company, while Vaalco CFO Ron Bain would also remain. The TransGlobe executives would work on the transition, for three to six months.
A note from SP Angel said high prices made asset-based deals harder to complete. “In these circumstances, it is sometimes better to use your shares as equity capital to create a larger player with sufficient scale and liquidity to attract a higher valuation multiple from investors than a company can do on its own,” the note said.
“Added to that, combinations often lower portfolio risk, improve balance sheet strength and reduce funding costs, which should allow the combined Company to return excess cash via share buybacks and/or dividends.”
This is not the first time TransGlobe has been in merger talks. In 2014, the company launched a plan to tie up with Chad-focused Caracal Energy. TransGlobe shareholders would have had a 34.4% stake, while Caracal had 65.6%.
The plan was scrapped after Glencore opted to buy Caracal. As such, it paid a $9.25mn termination fee to TransGlobe.
Updated at 3:50 pm with comment from SP Angel.