Tangiers Petroleum (u/r) Proposed takeover offer for Jacka Resources. The proposed takeover is an all share offer of 0.468 Tangiers shares for every share in Jacka Resources, implying a pre-merger share price of 11.1p for Tangiers (shares trading on ASX at $0.20 ~11.1p). Eve Howell is to remain as Chairman of Tangiers and Jacka CEO Bob Cassie to become Managing Director of the enlarged company, with the wider Board to comprise an additional two Tangiers nominees and one Jacka nominee. The combination of Tangiers and Jacka creates a c£37m market cap, African focussed E&P company with exploration and appraisal assets in Morocco, Tunisia, Nigeria, Somaliland and Australia.
The combined entity will have a stronger financial position upon completion in Q1 2014; pro-forma balance sheet is anticipated to have c£19m cash (debt free) following approval of each companies’ farm out agreements, which appears to fund high impact exploration (Morocco) and lower risk appraisal (Tunisia and Nigeria) drilling during 2014. We view the proposed takeover as broadly positive for diversifying Tangier’s portfolio while retaining an African focus, introducing additional near-term drilling activity and further strengthening the balance sheet. We place our target price under review while we assess the implication for valuation.
TANGIERS PETROLEUM* — Proposed Takeover of Jacka Resources — Tangiers Petroleum has announced that that it plans to acquire Jacka Resources via an off-market takeover bid. Tangiers is offering 0.468 Tangiers shares for every Jacka share held. Tangiers’ offer values Jacka shares at A$0.112 based on Tangiers’ last closing price of A$0.24 on 29 November 2013, a 56% headline premium to Jacka’s last closing price (A$0.072). The Jacka Board has unanimously recommended its shareholders accept the offer in the absence of a superior proposal. Upon completion of the transaction, existing Tangiers shareholders and Jacka shareholders will own approximately 53% and 47%, respectively, of the issued ordinary shares of the combined entity (on an undiluted basis). Jacka holds:
- 15% of the Bargou Block, Tunisia
- 5% of the Aje Fields (OML113), Nigeria
- 100% of the Ruhuhu licence, Tanzania
- 30% of the Odewayne Block, Somaliland
- 15% equity of Block WA-399-P, North West shelf, Australia
Jacka has 2C Contingent Resources of 27MMbbl and mean Prospective Resources of 106MMbbl. Eve Howell will remain as Chairman of Tangiers, while the plan is for Bob Cassie to become Managing Director of Tangiers upon completion. Tangiers will provide Jacka with a A$2.5m stand-by loan facility to assist Jacka’s funding in 1Q14. The transaction is expected to complete in February 2014. Tangiers’ Australian shares closed down 14% today at A$0.205, while Jacka shares closed up 22% at A$0.088.
RFC Ambrian Comment: We believe that, despite the large implied premium in the share ratio terms, this is a good deal for Tangiers. It follows Tangiers’ strategy of creating an African-focused upstream junior oil and gas company with a portfolio of exploration, appraisal and development petroleum prospects/fields. We believe the market has over-reacted to the implied premium in the proposed share swap terms. Jacka had 1Q14 administration costs of A$0.33m, or A$1.32m annualised. Assuming that half this can be saved annually (from having one Board instead of two, one Australian listing, one set of financial accounts, etc) and putting that saving on a 10% discount rate gives A$6.6m of value. The combined group will have pro forma cash of A$8m, with a further US$22m expected to flow in when the farm-in agreements relating to Tangiers’ Tarfaya Project and Jacka’s Odewayne Project are executed. We reiterate our Speculative Buy on the stock.
Malcolm Graham-Wood of VSA Capital
Tangiers has made a ‘friendly’ recommended offer for Jacka of 0.468 of its own shares for each Jacka share, valuing them at 11.2 cents, an increase of 56% on the previous close of 7.2 cents. Into the bargain Tangiers will loan Jacka A$2.5m for 1Q 2014 funding.
Management wise the highly impressive Eve Howell stays on Chairing the new group but Bob Cassie of Jacka will become MD. The group will have very strong African credentials going forward, the highly exciting Tarfaya Block offshore Morocco with Galp, Tunisia, Nigeria where they have their stake in the Aje field, Somaliland with Genel and Tanzania. In fact outside of Kurdistan the new group looks like a mini-Genel, like bite-sized.
Tangiers Petroleum (TPET LN) 12p
Whole is Greater than the Sum of Parts
In what is looking like a good deal for all parties, Tangiers and Jacka Resources are joining forces to create a single entity, which together will have a far more balanced portfolio than either has on their own.
In Tangiers, Jacka shareholders get exposure to the explosive potential of the Moroccan assets, while the Tangiers shareholders get exposure to Jacka’s appraisal and development portfolio, which has the potential to provide near to medium term cash flow to support Tangier’s superior exploration portfolio.
So, in the main, this deal is a solid tie-up for both companies, and if ever the adage that “the whole is greater than the sum of parts” were true, this is it.
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