Today’s main news is the Petrichor Partners agreed cash bid for Egdon Resources, a quick comment here, more to follow when I get feedback during the day, I’m in London at company meetings.
Egdon Resources
The board of directors of Egdon has announced that they have reached agreement with Petrichor Partners, LP with regard to the terms of a recommended all cash acquisition by Petrichor of the entire issued and to be issued ordinary share capital of Egdon.
· Under the terms of the Acquisition, which will be effected by a scheme of arrangement under the Companies Act and therefore be subject to shareholder approval and Court approval (and the Conditions and further terms set out in Appendix 1 to this announcement and to be set out in the Scheme Document), Egdon Shareholders who are on the register of members of Egdon at the Scheme Record Time will be entitled to receive:
4.5 pence for each Egdon Share
· The Acquisition values the entire issued and to be issued share capital of Egdon at approximately £26.64 million on a fully diluted basis and the price of 4.5 pence per Egdon Share represents a premium of approximately:
o 96 per cent. to the Closing Price of 2.3 pence per Egdon Share on 16 May 2023 (being the last Business Day before the commencement of the Offer Period);
o 92 per cent. to the volume-weighted average price of 2.35 pence per Egdon Share for the one-month period ended 16 May 2023 (being the last Business Day before the commencement of the Offer Period); and
o 78 per cent. to the volume-weighted average price of 2.53 pence per Egdon Share for the three-month period ended 16 May 2023 (being the last Business Day before the commencement of the Offer Period).
· If, on or after the date of this announcement and before the Effective Date, any dividend, distribution or other return of capital or value is announced, declared, made or paid by Egdon or becomes payable by Egdon in respect of the Egdon Shares, Petrichor reserves the right to reduce the consideration payable under the terms of the Acquisition of the Egdon Shares by an amount up to the amount of such dividend and/or distribution and/or other return of capital or value, in which case any reference in this announcement to the consideration payable under the terms of the Acquisition will be deemed to be a reference to the consideration as so reduced. Any exercise by Petrichor of its rights referred to in this paragraph shall be the subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the Scheme or the Acquisition. In such circumstances, Egdon Shareholders would be entitled to receive and retain any such dividend and/or other distribution and/or return of capital or value.
· It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
Recommendation
· The Egdon Directors, who have been so advised by VSA Capital as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the Egdon Directors, VSA Capital has taken into account the commercial assessments of the Egdon Directors. VSA Capital is providing independent financial advice to the Egdon Directors for the purposes of Rule 3 of the Takeover Code.
· Accordingly, the Egdon Directors intend to recommend unanimously that Scheme Shareholders vote in favour of the Scheme at the Court Meeting and that Egdon Shareholders vote in favour of the Resolution to be proposed at the General Meeting as the Egdon Directors who hold Egdon Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 14,648,773 Egdon Shares in aggregate, representing approximately 2.69 per cent. of Egdon’s issued share capital on 16 May 2023 (being the last Business Day before the date of this announcement).
Irrevocable undertakings
· Petrichor has received irrevocable undertakings from each of the Egdon Directors that hold Egdon Shares to vote in favour of the resolutions relating to the Acquisition at the Meetings (or in the event that the Acquisition is implemented by a Takeover Offer, to accept such Takeover Offer), in respect of a total of 14,648,773 Egdon Shares, representing, in aggregate, approximately 2.69 per cent. of the ordinary share capital of Egdon in issue on 16 May 2023 (being the last Business Day before the date of this announcement).
· Petrichor has also received irrevocable undertakings from Harbour Energy plc and Union Jack Oil plc in respect of a total of 62,733,333 Egdon Shares to vote in favour of the resolutions relating to the Acquisition at the Meetings (or in the event that the Acquisition is implemented by a Takeover Offer, to accept such Takeover Offer), representing, in aggregate, approximately 11.53 per cent. of the ordinary share capital of Egdon in issue on 16 May 2023 (being the last Business Day before the date of this announcement).
· In total, therefore, Petrichor has received irrevocable undertakings, including those irrevocable undertakings from the Egdon Directors who own Egdon Shares, in respect of, in aggregate, 77,382,106 Egdon Shares, representing approximately 14.23 per cent. of the issued ordinary share capital of Egdon on 16 May 2023 (being the last Business Day before the date of this announcement).
· Further details of these irrevocable undertakings are set out in Appendix 3 to this announcement.
Background to and reasons for the Acquisition
· Petrichor, a partnership of which the general partner is HEYCO International, Inc., is a wholly owned subsidiary of HEYCO Energy Group, Inc.. The ultimate parent company of HEYCO Energy Group, Inc. and Petrichor is Explorers Petroleum Corp, which is controlled by George Yates. HEYCO Group is an upstream energy portfolio group that delivers strategy, sophisticated technology, and capital to oil and gas exploration projects in the United States and Europe.
· Through Petrichor and other entities, HEYCO Group has invested in and provided technical advice to Egdon for more than two decades (and since 2016 has been a substantial shareholder in Egdon). The acquisition of Egdon adds to HEYCO Group’s expanding portfolio in Europe following the acquisition of a gas field in Northern Spain and the opening of a Madrid office in 2022.
· HEYCO Group believes the timing is right to acquire Egdon and take it private, as HEYCO Group believes that the public market continues to undervalue its assets, including the impressive Wressle development. Bringing Egdon into the HEYCO Group will create efficiencies, economies of scale, and, most importantly, add valuable assets and experienced personnel to its portfolio. Additionally, owning Egdon will allow HEYCO Group to more efficiently deploy capital and human resources to its most valuable projects across the UK, as well as Spain and the United States.
· HEYCO Group believes that fossil fuels remain critical for the UK’s future and that Egdon is strategically positioned for that future with its conventional projects as well as with opportunities for gas storage, hydrogen, geothermal, and renewable generation.
Information relating to Petrichor
· Petrichor, a partnership of which the general partner is HEYCO International, Inc., is a wholly owned subsidiary of HEYCO Energy Group, Inc.. The ultimate parent company of HEYCO Energy Group, Inc. and Petrichor is Explorers Petroleum Corp, which is controlled by George Yates. HEYCO Group is an upstream energy portfolio group that delivers strategy, sophisticated technology, and capital to oil and gas exploration projects in the United States and Europe.
· HEYCO Group’s core strengths are technical knowledge and management experience delivered by a team with proven expertise in geology, geophysics, reservoir engineering, international negotiation, drilling and production, and land and operations management.
· One of the few U.S. independent oil and gas companies with significant exposure in Europe, HEYCO Group has been strategically investing in the continent’s conventional and unconventional plays for more than 20 years. HEYCO Group was part of the group that commenced production at the Avington field in southern England in 2007 and is the parent company of a current UK licence holder.
· Headquartered in Dallas, Texas, and with offices in Roswell, New Mexico, and Madrid, Spain, HEYCO Group is privately owned by members of the Yates family of Southeastern New Mexico who have been active in the oil and gas industry since the 1920s. Chairman and CEO George Yates is the grandson of pioneer oilman Martin Yates, who with his partners discovered the first commercial oil well on state lands in New Mexico in 1924. For several decades, HEYCO Group operated in the Permian Basin, specifically in the Delaware Basin, with lease positions in all of the noteworthy horizontal plays.
Timetable and Conditions
· It is intended that the Acquisition will be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (although Petrichor reserves the right to effect the Acquisition by way of a Takeover Offer, subject to the consent of the Panel).
· The terms of the Acquisition will be put to the Scheme Shareholders at the Court Meeting and to the Egdon Shareholders at the General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of Scheme Shareholders, present and voting (and entitled to vote) at the Court Meeting, whether in person or by proxy, representing 75 per cent. or more in value of the Scheme Shares held by those Scheme Shareholders (or the relevant class or classes thereof). In addition, at the General Meeting to implement the Scheme, the Resolution must be passed by Egdon Shareholders representing at least 75 per cent. of the votes validly cast on the Resolution, whether in person or by proxy. The General Meeting will be held immediately after the Court Meeting. A copy of the Scheme Court Order must be delivered to the Registrar of Companies for registration, upon which the Scheme will become Effective.
· The Acquisition will be on the terms and subject to the Conditions set out in Appendix 1 to this announcement and to be set out in the Scheme Document, which will also set out further details of the Acquisition. It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Meetings, together with the Forms of Proxy, will be published within 28 days of the date of this announcement (or such later date as may be agreed by Petrichor and Egdon with the consent of the Panel). An expected timetable of principal events will be included in the Scheme Document.
· The Acquisition is expected to become Effective in the third calendar quarter of 2023, subject to satisfaction (or, where applicable, waiver) of the Conditions and the further terms set out in Appendix 1.
Comments on the Acquisition
Commenting on the Acquisition, George M. Yates, Chairman & CEO of HEYCO Group said:
· “Mark Abbott and his team have built a very strong enterprise with current production and a number of potential opportunities. As a long-time shareholder, we have held the belief that the public market hasn’t fully recognized Egdon’s full value. The acquisition allows us to more effectively support Egdon by directly infusing capital and leveraging our combined technical and managerial expertise. We are excited to continue supporting Egdon and believe that, together, we can better advance Egdon’s strategic initiatives.”
Commenting on the Acquisition, Mark Abbott, Managing Director of Egdon said:
· “We have a high regard for Petrichor and the HEYCO Group and they have been very supportive of Egdon over many years, helping us to get to the stage of profitability that we have reached today. There is a good deal of mutual respect between our groups and we are pleased that Egdon will continue its activities in safe hands. After considering all strategic options and recognising the challenges, the recommended acquisition provides shareholders with an opportunity to realise a cash exit at an attractive premium.”
First thoughts indicate that an agreed bid from Petrichor Partners was ever thus and 4.5p is about as good as it gets in this stage of the cycle. A market valuation on exit of £26.64 is fair without being overly generous but George Yates has had better chances over the years and the massive success of Wressle has put the price up.
But Wressle, as well as other Egdon assets will slot into the PP portfolio and with its 43.79% holding in Egdon according to the annual report it is effectively game over at this stage.
It is undoubtedly excellent news for both Union Jack and Europa and I will hope to have thoughts from them later. For Harbour it is just a handy piece of housekeeping which Premier had hoped might have happened a long time ago.
More later if appropriate….
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