Serica Energy (LON: SQZ) has knocked back a new cash and share-for-share bid from rival Kistos (LON: KIST) worth £1.15 billion, which may replace Mitch Flegg as CEO.
Responding, Serica said part of its reasoning for rejecting the deal was because the proposal is for Andrew Austin, executive director of Kistos, to become the new CEO of the combined business – replacing Serica CEO Mitch Flegg, but retaining Serica’s Tony Craven Walker as chairman.
Kistos has not publicly commented on board positions, only saying the new line up would “reflect a balanced contribution from each of Kistos and Serica and a proposal on the roles of Chairman and CEO”.
After getting rejected with its £1bn bid on July 12, Kistos wrote to Serica on July 22 with the updated proposal which has now also been declined.
It has published details of the plan, which would offer 0.4000 new Kistos shares for each Serica share plus cash of 213 pence; the latter comprising a shareholder distribution of 67p per share and an overall cash consideration of 146p per share.
Kistos said it equates to a revised offer of 425pence per Serica share, representing a premium of 357 pence as of the closing price on July 22.
Serica, who rejected the last offer due to it undervaluing the company, noted the 11% increase but said the brunt of that rise is driven by the rise in Kistos’ share price since July 11.
It said the move would see a change in leadership “during a crucial period for the industry” and praised its management team for a 1,120% share price rise over the last five years.
Serica said the revised offer once again “significantly undervalues” the company, taking no account for its investment plans or its potential high-impact North Eigg exploration well.
It also decried the proposed cash payment of 213p per share, saying the 67p shareholder distribution would be coming out of Serica coffers, not Kistos’.
Serica said: “Following careful consideration, the Board of Serica, together with its financial advisers, has unanimously rejected the Kistos Revised Possible Offer.
“The Board reiterates its position that it will not recommend any deal on terms which it believes are unattractive to its shareholders and wider stakeholders.
“Serica shareholders are strongly advised not to take any action.”
Deal doldrums?
The last offer Kistos made for Serica, on July 12, was also rejected due to it undervaluing the company.
Serica then made a counter-offer for Kistos too – that was also, in turn, rejected due to valuation concerns and Kistos being unable to retain its board.
Under Kistos’ revised bid, there would be a “balanced contribution” from each board – noting the replacement on Mitch Flegg.
As of July 15, 2022, Serica had 271,960,864 shares in circulation, according to its website.
Under the revised terms, Serica shareholders would own approximately 58% of the issued share capital.
Kistos also said the move would give Serica access to the “stronger continental European gas market through Kistos’ Dutch gas assets”.
Serica has previously decried this as an “opportunistic reaction” to the recent disconnect in gas prices between the UK and Europe.
Both firms have until August 9 under UK takeover rules to make a firm offer, or to state they formally do not intend to do so.
Kistos has previously said that the union of the two companies would make strong industrial logic, unlocking value creation and scale.
It described the potential merger as creating “a leading independent North Sea champion”.
Serica is on record as saying it wants to do find an M&A deal in order to deliver growth.
However earlier this month it said the board “will not recommend any deal on terms which it believes are unattractive to its shareholders and wider stakeholders.”
After climbing 8% over the last five days, Serica Energy shares are trading at £3.61.
Kistos is up 10% over that time period, with shares trading at £5.15.
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