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July 12, 2022

Serica Energy rejects Kistos’ proposed merger of $1.23bn

Serica offered a cash-and-stock counter-proposal, which was rejected by Kistos’ board

By Smruthi Nadig

British oil and gas group Serica Energy knocked out a proposed merger valued at $1.23bn (£1.04bn) by an energy investment firm, Kistos, which is trying to expand its position in the North Sea. 

Details of the proposal were disclosed by Kistos. The deal included an offer of $4.54 (£3.82) per share in cash and equity, representing a 25% increase over Serica’s closing price on 11 July. For each Serica share, the offer included 0.2932 new Kistos shares and $2.92 (£2.46) in cash. 

Kistos mentioned in a statement that despite Serica declaring that its board “can see industrial logic in combining the portfolios of the two companies”, the board rejected the proposed merging.

Serica proposed a counter-offer counter-offered a proposal of $1.07 (£0.9) per share and 1.29 new Serica shares for each Kistos share. Kistos owns a 20% share in TotalEnergies’ offshore fields in the West of Shetland, and assets in the Dutch North Sea. Kistos rejected this offer and said the price was “at the wrong price, with the wrong mix of stock and cash”.

Kistos has called on all Serica shareholders to persuade the company to undergo ”constructive discussions” regarding the proposals. Serica produces around 5% of Britain’s gas supplies and said it is considering all options and has asked the shareholders to put all actions on hold until decided otherwise. 

Nathan Piper, oil and gas research head at Investec, said the offer understates Serica’s exposure to high UK prices and the North Eigg exploration findings. They also expect more discussions to fill the gap between the total value and balanced ownership in combined businesses.

Under present terms and conditions, Serica shareholders would possess roughly half of the combined company’s issued share capital. 

Kistos believes the merger of the two companies has good industrial logic with the potential to unlock considerable value creation, and result in a higher scale.

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