LGIM expresses doubts over Tullow/Capricorn merger

UK asset manager Legal & General Investment Management made a rare public intervention and come out against a planned merger between Tullow Oil and Capricorn Energy.

LGIM had "strong reservations" about the deal, it said in a statement on Monday, adding that there was "no clear strategic rationale for the combination".

The investment arm of insurer Legal & General holds a 3.9% stake in Capricorn, which earlier this month agreed a $827m all-share merger paid for with new Tullow stock.

"In our capacity as a responsible investor, we have strong reservations about the proposed transaction," LGIM said.

The asset manager also has 1.74% of Tullow and said the deal would “increase financial leverage, and increase the probability of the combined entity growing oil production over time, potentially in higher cost basins”.

“We do not believe there are material synergies between the two companies, their strategies or their business models.”

Under the terms of the transaction, Capricorn investors would receive 3.8 new Tullow shares for each of their existing shares. Tullow investors would own 53% of the combined company, with Capricorn’s shareholders taking the remainder.