Investor group Kimmeridge offers $6bn for gas driller at centre of clash
Energy PE firm says its offer is superior to proposed fund-to-fund transfer that led to accusations of self-dealing
US energy investment group Kimmeridge has submitted a $6bn offer to buy Ascent Resources, the gas driller at the centre of a legal dispute in which a Middle Eastern sovereign wealth fund accused a US private equity group of self-dealing.
Kimmeridge’s managing partner Ben Dell told the Financial Times its offer is superior to a plan by Ascent’s current private equity backer, Energy & Minerals Group, to transfer its stake in the company from one of its funds to another, at a price that the fund’s investors say undervalues the company.
The bid is the latest challenge to EMG’s efforts to sell a more-than 30 per cent stake in the driller between the two funds. The Abu Dhabi Investment Council, a sovereign wealth fund, sued EMG earlier this month seeking to block the deal, arguing that it would short-change investors while creating a windfall for its PE backers.
The fund-to-fund deal valued Ascent at about $5.5bn, but also called for selling investors to be paid over two years’ time, the FT reported previously. In its lawsuit, the sovereign wealth fund accused EMG of underplaying Ascent’s prospects to be sold to other investment groups or strategic buyers to selling investors.
Now, Ascent is facing a takeover bid from Kimmeridge that comes at what the fund says is a higher price than the mooted fund-to-fund deal. The transaction was structured as a continuation fund deal, which has become more common in recent years as private equity groups struggle to find buyers for trillions of dollars in portfolio holdings.
“Our view is that this is a significant premium versus the valuation proposed in the continuation funds,” said Dell in an interview, referring to the fund-to-fund deal.
Kimmeridge’s offer is contingent on Ascent offering it 60 days of exclusive negotiations and is subject to due diligence. It was also offering existing Ascent investors the ability to participate in the takeover, acquiring up to a 49 per cent stake in the driller, Dell said.
Kimmeridge is a private equity group with a shale gas production business in Texas and a liquefied natural gas export terminal in Louisiana. It also has an activist investment arm, which recently disclosed that it had taken a stake in Devon Energy, a shale producer based in Oklahoma City.
In April Kimmeridge sold a 24.1 per cent stake in its shale gas production business to Mubadala Energy, which is owned by the Abu Dhabi sovereign investor Mubadala. The business produces about 500mn cubic feet of natural gas equivalent per day from the prolific Eagle Ford region of south Texas and was Mubadala Energy’s first big investment in the US.
Dell said in the interview that while there was some question of how valuable Ascent’s shale reserves in the US Midwest would last, he was confident that the company deserved a valuation of $6bn.
“It is a high-quality asset with significant strategic value,” said Dell. “When we look at the valuation that is being floated out there, our belief is there are better options for investors.”
Last week, the FT reported that hedge fund Mason Capital had also submitted an offer to buy Ascent and asked the driller to run a full sale process.
Ascent did not respond to a message seeking comment. EMG did not immediately respond to a request for comment.