Tullow set to offer $500m for African company

Dublin and London-listed Tullow Oil said yesterday it would offer $500 million (€412.25 million) for Energy Africa in a deal likely to be a combination of shares and cash.

Trading in Tullow shares was temporarily suspended yesterday ahead of the announcement, which was prompted by intense media speculation about the deal earlier this week. The Irish exploration firm's statement made it clear that talks with Energy Africa were at an advanced stage.

"Tullow has signed agreements with shareholders holding, in aggregate, over 90 per cent of Energy Africa's issued share capital that allow Tullow an exclusive period of negotiations which may or may not lead to an offer," Tullow said in a statement. The company added that it had sought the information necessary to complete its final due diligence on the company.

Its statement said that any offer was likely to be in cash with a shares alternative. The company plans to fund it through the issue of new equity and bank borrowings.

A Tullow spokesman told The Irish Times yesterday that the company's debt facilities were enough to match that element of the deal.

However, he did not say what the likely breakdown between cash and equities would be.

The spokesman said that 25 per cent of Energy Africa's shareholders were willing to accept Tullow shares in exchange for their stake, while 65 per cent would be likely to seek cash.

The remainder was undecided. "It's still early days, we have to emphasise that we have not actually made an offer yet," he said.

He was unable to say how long any takeover process was likely to take, as it would involve transactions between public companies in London and South Africa.

South African oil refiner Engen owns 56.5 per cent of Energy Africa, while Engen itself is in turn 80 per cent controlled by Malaysian national oil company Petronas.

Tullow operates in Gabon, the Cameroon and the Ivory Coast. African Energy will add Namibia, Equatorial Guinea and the Congo to that list. Market watchers greeted news of the deal positively.

Investec analyst Mr Bruce Evers said the acquisition would make strategic sense for Tullow, and rated the Irish company a "buy" on the back of the news.

Its shares closed at €1.45 in Dublin and 86.5p in London on Thursday.

They did not trade yesterday as a result of the suspension. The company requested the temporary suspension as it considers that the Energy Africa deal could be classed as a reverse takeover.

Stock exchange rules require temporary suspension of a share in this circumstance.

Earlier this week, Tullow announced that it was abandoning a well off the Gabon coast after test drilling showed it contained "no significant quantity" of recoverable reserves.

The company also has a presence in the North Sea and has said that it has high hopes for two gas-rich blocks off the Dutch coast, as well as the 67 per cent of the Thames Field that it controls.