Talisman Energy Inc. (NYSE, TSE: TLM) and Repsol SA reached an agreement Dec. 16 in which Repsol will acquire all of the outstanding common shares of Talisman for $8 (C$9.33) per share in cash. The total transaction value is about $13 billion, including Talisman's current debt.
According to a Talisman news release, the purchase price for the common shares represents a 75% premium to the seven-day volume weighted average share price and a 60% premium to the 30-day volume weighted average price. Canada-based Talisman will be allowed to pay aggregate cash dividends of $0.18 per common share prior to closing, including the dividend declared and payable on Dec. 31.
The combination of the two companies creates a global E&P company with improved scale, enhanced capabilities and more attractive opportunities for future growth, according to Chuck Williamson, chairman of Talisman’s board of directors. The combined company will possess the financial flexibility necessary to maximize the value of Talisman's large undeveloped resource base, he added.
“This deal creates significant and immediate value for Talisman stakeholders,” Williamson said. “Importantly, the deal underscores Repsol's strong belief in the high-quality portfolio that Talisman has worked hard to develop.”
Antonio Brufau, Repsol chairman, said, “Our combination with Talisman allows us to align our highly complementary portfolios of upstream assets to create a truly global company well-positioned to grow production and reserves.”
Tudor Pickering Holt (TPH) called the deal “a big positive for Talisman shareholders.”
The agreement allows Talisman shareholders to “cash out in front of a growing funding gap and will remove the weight of North Sea cash burn/reserve write down-that is forthcoming. [Talisman] notes that several other parties have inquired regarding potential transactions so another bid is always possible, but the buyer pool for this diverse asset base [is] likely limited in our view,” TPH said in a news release.
However, TPH said it does not like the deal for Repsol. “First we think that Repsol overpaid given the current market and are paying a substantial premium to TLM’s 2P NAV (net asset value). We estimate that it takes Repsol’s net debt to $15.4 billion.”
Furthermore, TPH said that “Talisman has a disparate asset base that may be difficult to integrate. It also may be a difficult cultural fit between the two firms. We see downside risk to TLM’s reserves at year-end given current pricing. Using the futures strip for five years the IRR (internal rate of return) of the deal is just 8.2%.”
Talisman said that the transaction would provide tangible long-term benefits to Alberta and Canada, and that combing the two companies would “create a leading global exploration and production company with a presence in over 50 countries [with] 7,000 employees.”
Notable takeaways of the deal, according to Talisman, are:
- Talisman will be a significant part of Repsol’s worldwide presence.
- Repsol plans to leverage Talisman’s assets and its talent, including the company’s offshore and unconventional capabilities.
- Repsol has the track record and financial flexibility to accelerate the development of Talisman’s oil and gas assets, which will provide tangible and immediate benefits for Canada and create meaningful opportunities for employees, while retaining Talisman’s talent in Canada.
- Calgary will be home to one of Repsol’s largest management offices, and it will be an important E&P center for the combined company. Talisman's Canadian assets will continue to be managed locally in Canada.
- Repsol is the highest-scoring oil and gas company in the Dow Jones Sustainability Indices in two out of the last three years.
Talisman’s board of directors has unanimously approved the deal and recommends that common shareholders and preferred shareholders vote in favor of the arrangement at a special meeting in mid-February 2015.
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