Markets have warmed to Horizon Oil’s planned $300 million nil-premium reverse takeover of Roc Oil, pushing both stocks higher.
Macquarie analysts yesterday forecast the scrip deal, which has few synergies and is largely aimed at capturing benefits of scale, could push the combined value of the companies up 20 per cent, which is lower than Roc chairman Mike Harding was predicting but still healthy.
In a note to clients, Macquarie analyst Kirit Hira said Horizon shareholders were getting more out of the deal than Roc’s, who will end up with 42 per cent of the new company, but that the deal looked good for both.
“With both companies offering compelling valuation on a stand-alone basis, and given a proposed merger of equals, the merged company appears to equally offer an attractive valuation both on a stand-alone basis and compared to its new Asian mid-cap peer group,” Mr Hira said.
“While the transaction is being presented as a merger of equals, we believe that the transaction favours Horizon shareholders.”
Yesterday, Roc shares rose 3c to 48c and Horizon shares were up 2.5c to 38c.
Mr Harding, who will chair the merged company if the deal goes through, defended the metrics by saying the deal would transform Roc.
“By doing this deal, we’re buying into some of the cracking assets that are sitting there in PNG, that are highly valuable to us and will take us to a point where we are in a different league — have long-term production, can go to the market to raise capital,” he said.
“If somebody asked me to replicate buying these assets and building a profile like we’ll have with Horizon, I couldn’t do it.”
The structure of the friendly scrip deal, where Horizon shareholders, not Roc’s, vote on forming a merged company, has angered Roc’s biggest shareholder, Allan Gray, which has said it is not impressed by the deal.
But it is unclear what options the 19.6 per cent shareholder has now the deal has been backed by the whole Roc board and is to be voted on only by Horizon shareholders some analysts say are getting a better deal than Roc holders.
Mr Harding said one reason for the structure was that the merged company could easily keep the Roc name, which was better known in Asia.
Horizon chief Brent Emmett, who would run the new Roc, said the structure made it easy for convertible bondholders to redeem their bonds and simplify the structure of the company, as well as providing more certainty the deal would be approved if Horizon shareholders voted on it.