Roc Oil and Horizon Oil have announced plans for an all-scrip merger which would create a new player with a market capitalisation of $800 million.
The merger of equals, which would see Horizon shareholders take 0.724 Roc shares for each Horizon share, has unanimous support from both company’s boards in the absence of a superior proposal.
Roc shareholders will hold around 42 per cent of the new entity, while Horizon shareholders will own around 58 per cent, in line with the groups’ 10-day volume weighted share prices to April 23.
The deal, which is expected to be completed by August, would consolidate “highly complementary” Asian focussed portfolios centred on China, Malaysia, Papua New Guinea and New Zealand, and contain net proved and probable reserves of 36.9 million barrels of oil equivalent, according to the groups’ investor presentation.
Horizon chief executive Brett Emmett is set to become chief executive and managing director of the group, with Roc chairman Mike Harding to chair the board, comprising an additional three current non-executive Roc directors and four non-executive Horizon directors.
Emmett told reporters part of the rationale behind the merger was that it would lead to a significant re-rating of the combined value of the company. “We believe we are both significantly undervalued in the marketplace and one of the reasons for that is scale,” Emmett said. After the deal, the merged entity should be valued at multiples closer to those of its peers, he said.
The companies forecast that the new company would achieve an enterprise value to 2015 earnings multiple of 3.3 compared with a sector median multiple of 4.6.
Shares in Horizon slumped 9.5 per cent to $0.335 after the news, making it the biggest decliner on on the day, while ROC Oil shares edged up 1.5 per cent to $0.46.
The deal remains conditional on completion of Horizon’s Osaka Gas Asset Sale agreement, no adverse change in either group and regulatory and shareholder approval.