Shareholder Palliser urges Capricorn to call off Tullow deal

Capricorn announced in June that it had agreed to buy Tullow in all-share deal. Under the terms of the transaction, Capricorn shareholders will be entitled to receive 3.8068 new Tullow shares for each of their shares. Capricorn shareholders will own 47% of the combined group, while Tullow holders will own the rest.

In a letter to Capricorn’s board on Tuesday, Palliser said the merger was "one-sided, in favour of Tullow, lacks a meaningful strategic rationale and is a disappointing step backwards in ESG".

Palliser said the merger materially undervalues Capricorn and its straightforward asset base, which includes a substantial net cash position, low-risk contingent receivables and a high-quality, opportunity-rich Egyptian portfolio.

"Based on our own in-depth analysis and with the benefit of extensive third-party input, we strongly believe that Capricorn can realise value of at least 330 pence per share, representing a 50% upside to the current share price and a 67% upside to the terms of the proposed merger," it said.

It went on: "Rather than the touted ‘merger of equals’, the proposed merger appears to us to be a poorly disguised nil-premium takeover of Capricorn by Tullow through which Capricorn’s substantial net cash balance, available after years of arbitration, would be applied towards repaying Tullow’s junk-rated creditors, with zero value attributed to Capricorn’s remaining high-quality and unencumbered assets.

"We believe this outcome falls far short of what Capricorn’s long-suffering shareholders deserve."

Palliser noted that a "a significant quorum" of other investors are equally troubled by the logic of the deal and argued that a "wider public dialogue" is urgently required.