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Thailand's PTT beats Shell bid for Cove Energy

Bangkok, May 23, 2012 (AFP) - Thai oil giant PTT said Wednesday it had struck a deal to buy East Africa-focused Cove Energy for £1.22 billion ($1.92 billion), trumping a rival offer from Royal Dutch Shell.

PTT Exploration & Production PCL (PTTEP) increased its cash offer for Cove to 240 pence a share, from an earlier bid in February of 220 pence, it said in a statement to the London Stock Exchange.

The deal is a blow to Royal Dutch Shell, which last month said it had reached an agreement to buy Cove Energy for £1.12 billion, or 220 pence per share.

PTT said the directors of Cove would unanimously recommend that shareholders of the London-listed company accept its bid and said they had withdrawn their previous recommendation for the Shell offer.

"The bid from PTTEP represents significant value for shareholders and confirms the world-class nature of Cove's East African assets," Cove Energy chief executive John Craven was quoted as saying in the statement.

PTT and Cove are already partners in several East African energy projects including a promising gas field off the coast of Mozambique.

"We are delighted to have announced a recommended offer to acquire Cove and all its assets," said PTTEP chief executive Tevin Vongvanich.

"This acquisition illustrates our commitment to leveraging the LNG (liquefied natural gas) value chain of the PTT Group and is consistent with our long-term strategic priorities."

-- (c) Copyright AFP 2012-05-23

[kblaze]

doubtful Shell won't come back with a better offer as Cove keeps coming back after each offer with magically more discovered gas fields. Investors and analysts dont like this bidding war hence the stocks drop today (and last time they made an offer) because EP is picking a fight with a gorilla

[yoshiwara]

isn't PTT 51% state owned?

[kblaze]

ptt is, and pttep is 65% owned by ptt

[yoshiwara]

Is there any indication where the cash from the straight cash offer originates?

[kblaze]

well they are going to use existing cash and debt - the latter causing the concern

"PTTEP AI expects to fund the aggregate consideration payable under the Acquisition using a mixture of existing cash resources and a committed debt facility available to the PTTEP Group"

[yoshiwara]

What I would be interested in is the projected ratio between cash and debt and the sources of the debt. Anything?

[kblaze]

close to 50/50 in cash and debt. They would have to raise capital within a year to pay off the debt borrowed. The debt thus, would be short term and provided by local institutions.

[yoshiwara]

close to 50/50 in cash and debt. They would have to raise capital within a year to pay off the debt borrowed. The debt thus, would be short term and provided by local institutions.

I have read some comments raising eyebrows as to the amount of money which will expected to have to be raised and this was before the latest lurch downwards in commodity prices. My questions now are whether PTT would expect to raise such loans on the international credit markets, is the interest rate now going up with the current turmoil, what percentage of loans would expected to be raised purely from within Thailand and would a such a large purchase likely involve the same sort of interference we have recently seen with the firing of the Thai Airways CEO. ie expect some dirty fingers poking in the deal? Lastly, odds on Shell now eventually walking away leaving PTT to stew in their juice? Or is this deal so lucrative that it is a one-way bet?

[kblaze]

It's definitely not over. Shell is likely to come back with a raised offer in about 3 weeks as each counter-offer has taken about 1 month to prepare. But if we don't hear from them in that time period then the chances of PTTEP winning rise dramatically (still chance for other oil exploration firms to get involved, especially if more gas fields are found).

Regarding financing, I was wrong before. 78% will be financed by a loan from UBS, the rest from cash. PTTEP has a AAA credit rating (according to TRIS, BBB+ S&P), so its pretty much as safe as sovereign debt, and thus they don't have problems borrowing money. As far as interest rates go, I don't know too much regarding the deal's rates, but that in the current environment rates are actually favorable, should be 2-3% interest for a short-term loan.

As far as govt meddling is concerned it is very unlikely. The govt has been very hands off with this company as they have always wanted it to seem as corporate as possible, and frankly the deal with Cove is too complicated for bureaucrats to get involved, in my opinion. The bottom line is investors are much more concerned about this purchase getting more expensive and how EP will be paying for the deal and the short term impact, i.e. will dividend payouts be affected.

[yoshiwara]

It's definitely not over. Shell is likely to come back with a raised offer in about 3 weeks as each counter-offer has taken about 1 month to prepare. But if we don't hear from them in that time period then the chances of PTTEP winning rise dramatically (still chance for other oil exploration firms to get involved, especially if more gas fields are found).

Regarding financing, I was wrong before. 78% will be financed by a loan from UBS, the rest from cash. PTTEP has a AAA credit rating (according to TRIS, BBB+ S&P), so its pretty much as safe as sovereign debt, and thus they don't have problems borrowing money. As far as interest rates go, I don't know too much regarding the deal's rates, but that in the current environment rates are actually favorable, should be 2-3% interest for a short-term loan.

As far as govt meddling is concerned it is very unlikely. The govt has been very hands off with this company as they have always wanted it to seem as corporate as possible, and frankly the deal with Cove is too complicated for bureaucrats to get involved, in my opinion. The bottom line is investors are much more concerned about this purchase getting more expensive and how EP will be paying for the deal and the short term impact, i.e. will dividend payouts be affected.

Do you think the current volatility in the markets gives Shell the opportunity to walk away given shareholders concern that they don't overpay?

On the other side, do you think PTTEP are as keen as they were 2 weeks ago?

Yes I know acquisitions are justified as strategic acquisitions but even so........

[kblaze]

Hard to say as imo the current volatility isn't enough for Shell to walk away, they are a huge, financially stable company that wants to get more involved in Africa. but if the EZ falls apart after the Greek june 17 elections and oil prices continue to drop then its possible that Mozamb loses its appeal.

Regarding EP, yes they are still keen, they won't be retracting their offer no matter the current economic turmoil. However if Shell comes back with a higher offer, I think it could price EP out.

[dekestone]

doubtful Shell won't come back with a better offer as Cove keeps coming back after each offer with magically more discovered gas fields.

And sure enough, right on time...

A further major gas find off the coast of Mozambique was announced by US firm Anadarko Petroleum yesterday, raising the stakes in the bid war for London-listed partner Cove Energy.

http://www.iol.co.za/business/business-news/anadarko-s-new-mozambique-gas-find-set-to-ignite-bidding-for-cove-1.1316585

Shell's turn.

[jaysg]

think Shell will up its ante with better offer.

[yoshiwara]

think Shell will up its ante with better offer.

Wrong on that one. Shell not to be doubted on due diligence and now PTTEP scarabbling for additional funds and dragging down stock price and parent PTT.

[kblaze]

well they beat the gorilla, now lets see if they can convince the market dividend yields won't slow down...

[yoshiwara]

well they beat the gorilla, now lets see if they can convince the market dividend yields won't slow down...

Beat them for what? is the question. Now they are scrabbling around for capital to pay for an 8% share of a field. Shell meanwhile is talking with Anardarko to saddle up and may still finish as the senior manager on the Mozambique field extraction.