Talisman Sale May Be Holders’ Best Exit After Oil Rout: Real M&A
2014-12-11 02:07:54.961 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Brooke Sutherland and Rebecca Penty
Dec. 11 (Bloomberg) -- For Talisman Energy Inc. investors,
a sale at depressed prices may be more worthwhile than waiting
out the rout in oil.
Repsol SA, which took a look at Talisman earlier this year,
is sniffing around again after the plunge in crude prices drove
the Canadian explorer’s stock below C$5 for the first time in 14
years. Talisman said it has also had talks with other parties.
Suitors could offer C$8 a share, based on the average premium in
recent oil deals.
A deal in that price range would leave many shareholders,
including billionaire Carl Icahn who disclosed a stake last
October, with a loss on their investment. A quick exit and a
chance to recoup whatever money they can might be preferable to
continuing to own a stock that analysts predict may not reach in
a year’s time what shareholders could get today in a sale.
“Talisman shareholders are ready for anything -- it’s been
a torturous process,” Chris Feltin, a Calgary-based analyst at
Macquarie Group Ltd., said in a phone interview. “Any movement
on any deal in terms of bringing cash into the company to try to
stop the bleeding would be viewed positively.”
Brent Anderson, a spokesman for Calgary-based Talisman,
declined to comment. Representatives for Madrid-based Repsol
didn’t respond to requests for comment.
Bad Year
Talisman’s stock has plunged 65 percent this year as oil
slumped and the company failed to find the buyers needed to make
inroads in an asset-divestiture plan designed to shore up its
balance sheet. It’s now valued at about C$4.5 billion ($3.9
billion), compared with more than C$20 billion as recently as
2011.
“The equity is a quarter of what it was,” Chris Cox, a
Calgary-based analyst at Raymond James Financial Inc., said in a
phone interview. “This period of low oil prices kind of forces
the decision of the board and management a little more because
now your debt overhang becomes all that much more significant.
It necessitates a quicker action.”
Buyers are aware of that, and the drop in Talisman’s share
price may facilitate a deal. After abandoning a plan to acquire
Talisman earlier this year, Repsol has now revived talks about a
deal for some or all of the explorer’s assets, people familiar
with the matter said this week.
Better Prospects
Part of Repsol’s hangup had been its struggle to line up
buyers for the Talisman assets it wasn’t interested in owning,
people have said, asking not to be identified discussing private
information. Talisman’s plunging valuation and the prospect of a
cheaper deal may make the Spanish company more willing to take
on those less desirable projects itself.
“We’re getting to a level where a transaction makes more
sense from a valuation perspective, from a buyer’s standpoint,”
Feltin of Macquarie said.
Similar-sized targets in oil exploration have commanded an
average premium of about 38 percent in the last three years,
according to data compiled by Bloomberg. For Talisman, that
would be the equivalent of about C$8 a share, based on the
stock’s price during the past 20 days.
A sale lets investors take their gains now and avoid
whatever volatile ride the crude market has in store for them.
Analysts on average expect the stock to trade at C$8.43 a year
from now, according to data compiled by Bloomberg. Those who
refreshed their estimates this month are projecting the stock
won’t top C$8, the data show.
“Shareholders, if they’ve been in the stock for any length
of time, they’ve suffered a lot of pain,” said Lanny Pendill, a
St. Louis-based analyst at Edward Jones & Co. It seems like
Talisman has “been looking to sell the company for over a year
now.”
Holding Out
Not all shareholders are going to support a sale with oil
at a five-year low. Icahn in particular may argue for holding
out for a better price -- especially a higher one than where he
bought the shares, said Laura Lau, a fund manager who oversees
more than C$1 billion at Brompton Group in Toronto.
Talisman shares traded at about C$13 when Icahn disclosed a
stake and said he may talk with management about strategic
alternatives. The stock closed yesterday at C$4.37 and earlier
this week touched its lowest level since 2000.
“I wouldn’t be surprised if he protested even a 100
percent premium today,” Lau said. “Do you really want to sell
at the bottom of the market?”
Shareholders would probably be willing to accept a price
closer to C$10 a share, said David Neuhauser, a fund manager at
Talisman shareholder Livermore Partners.
Struggling Assets
Repsol may also still be wary of taking on Talisman’s
struggling North Sea assets, said David Meats, a Chicago-based
analyst at Morningstar Inc.
If it can’t find a buyer for the whole company at a
reasonable price, Talisman may turn to larger asset sales. It
also has the option of reducing spending or lowering its
dividend, said Pendill of Edward Jones.
Doing nothing may not sit well with its suffering
shareholders, and just provides more openings for buyers.
“Today’s stock price is discounting tremendously not only
the assets but also the future cash flow generation of the
assets that aren’t producing today,” Neuhauser of Livermore
said. Buyers will look at that “very opportunistically.”
For Related News and Information:
Repsol Said to Revive Talks With Talisman Over Possible Deal
Oil Price Collapse Enables Buyers to Grab Top Targets: Real M&A
Talisman Deal News: TLM CN <EQUITY> TCNI MNA <GO>
Bloomberg Intelligence -- Crude Oil and Gas E&P: BI EXPR <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Rebecca Penty in Calgary at +1-587-702-3025 or
rpenty@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2014-12-11 02:07:54.961 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Brooke Sutherland and Rebecca Penty
Dec. 11 (Bloomberg) -- For Talisman Energy Inc. investors,
a sale at depressed prices may be more worthwhile than waiting
out the rout in oil.
Repsol SA, which took a look at Talisman earlier this year,
is sniffing around again after the plunge in crude prices drove
the Canadian explorer’s stock below C$5 for the first time in 14
years. Talisman said it has also had talks with other parties.
Suitors could offer C$8 a share, based on the average premium in
recent oil deals.
A deal in that price range would leave many shareholders,
including billionaire Carl Icahn who disclosed a stake last
October, with a loss on their investment. A quick exit and a
chance to recoup whatever money they can might be preferable to
continuing to own a stock that analysts predict may not reach in
a year’s time what shareholders could get today in a sale.
“Talisman shareholders are ready for anything -- it’s been
a torturous process,” Chris Feltin, a Calgary-based analyst at
Macquarie Group Ltd., said in a phone interview. “Any movement
on any deal in terms of bringing cash into the company to try to
stop the bleeding would be viewed positively.”
Brent Anderson, a spokesman for Calgary-based Talisman,
declined to comment. Representatives for Madrid-based Repsol
didn’t respond to requests for comment.
Bad Year
Talisman’s stock has plunged 65 percent this year as oil
slumped and the company failed to find the buyers needed to make
inroads in an asset-divestiture plan designed to shore up its
balance sheet. It’s now valued at about C$4.5 billion ($3.9
billion), compared with more than C$20 billion as recently as
2011.
“The equity is a quarter of what it was,” Chris Cox, a
Calgary-based analyst at Raymond James Financial Inc., said in a
phone interview. “This period of low oil prices kind of forces
the decision of the board and management a little more because
now your debt overhang becomes all that much more significant.
It necessitates a quicker action.”
Buyers are aware of that, and the drop in Talisman’s share
price may facilitate a deal. After abandoning a plan to acquire
Talisman earlier this year, Repsol has now revived talks about a
deal for some or all of the explorer’s assets, people familiar
with the matter said this week.
Better Prospects
Part of Repsol’s hangup had been its struggle to line up
buyers for the Talisman assets it wasn’t interested in owning,
people have said, asking not to be identified discussing private
information. Talisman’s plunging valuation and the prospect of a
cheaper deal may make the Spanish company more willing to take
on those less desirable projects itself.
“We’re getting to a level where a transaction makes more
sense from a valuation perspective, from a buyer’s standpoint,”
Feltin of Macquarie said.
Similar-sized targets in oil exploration have commanded an
average premium of about 38 percent in the last three years,
according to data compiled by Bloomberg. For Talisman, that
would be the equivalent of about C$8 a share, based on the
stock’s price during the past 20 days.
A sale lets investors take their gains now and avoid
whatever volatile ride the crude market has in store for them.
Analysts on average expect the stock to trade at C$8.43 a year
from now, according to data compiled by Bloomberg. Those who
refreshed their estimates this month are projecting the stock
won’t top C$8, the data show.
“Shareholders, if they’ve been in the stock for any length
of time, they’ve suffered a lot of pain,” said Lanny Pendill, a
St. Louis-based analyst at Edward Jones & Co. It seems like
Talisman has “been looking to sell the company for over a year
now.”
Holding Out
Not all shareholders are going to support a sale with oil
at a five-year low. Icahn in particular may argue for holding
out for a better price -- especially a higher one than where he
bought the shares, said Laura Lau, a fund manager who oversees
more than C$1 billion at Brompton Group in Toronto.
Talisman shares traded at about C$13 when Icahn disclosed a
stake and said he may talk with management about strategic
alternatives. The stock closed yesterday at C$4.37 and earlier
this week touched its lowest level since 2000.
“I wouldn’t be surprised if he protested even a 100
percent premium today,” Lau said. “Do you really want to sell
at the bottom of the market?”
Shareholders would probably be willing to accept a price
closer to C$10 a share, said David Neuhauser, a fund manager at
Talisman shareholder Livermore Partners.
Struggling Assets
Repsol may also still be wary of taking on Talisman’s
struggling North Sea assets, said David Meats, a Chicago-based
analyst at Morningstar Inc.
If it can’t find a buyer for the whole company at a
reasonable price, Talisman may turn to larger asset sales. It
also has the option of reducing spending or lowering its
dividend, said Pendill of Edward Jones.
Doing nothing may not sit well with its suffering
shareholders, and just provides more openings for buyers.
“Today’s stock price is discounting tremendously not only
the assets but also the future cash flow generation of the
assets that aren’t producing today,” Neuhauser of Livermore
said. Buyers will look at that “very opportunistically.”
For Related News and Information:
Repsol Said to Revive Talks With Talisman Over Possible Deal
Oil Price Collapse Enables Buyers to Grab Top Targets: Real M&A
Talisman Deal News: TLM CN <EQUITY> TCNI MNA <GO>
Bloomberg Intelligence -- Crude Oil and Gas E&P: BI EXPR <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Rebecca Penty in Calgary at +1-587-702-3025 or
rpenty@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman