A day before its open offer for London-listed Imperial Energy closes, ONGC Videsh Ltd (OVL), the overseas investment arm of India’s largest oil producer Oil and Natural Gas Corporation (ONGC), is yet to receive 90 per cent subscription, a benchmark that will enable it to buy the UK company in its largest-ever acquisition.
Analysts, however, expect more than 90 per cent of Imperial’s shareholders to accept OVL’s offer before it closes at 1 pm London time tomorrow, arguing that Imperial’s share price on the London Stock Exchange continues to be lower than OVL’s offer price of 1,250 pence per share. The company’s share price on Friday closed 18 per cent lower than OVL’s offer price. It rose over 7 per cent in today’s trading. If less than 90 per cent of shareholders agree to sell their shares to OVL, the Indian company will be able to walk out of the deal.
Oil prices have tumbled by around 70 per cent from the $128 per barrel price prevailing at the time of making the offer in late August this year. Lower oil prices have reduced OVL’s return on investment in Imperial, which has a market capitalisation of a little over £1 billion.
Under UK takeover rules, OVL will be compelled to buy Imperial for £1.4 billion if more than 90 per cent of shareholders agree to sell their shares to the Indian company. “It only makes sense for the Imperial shareholders to sell to OVL with oil prices at these levels. So far, less than 90 per cent (of the offer) has been subscribed. But it should go above 90 per cent by the time it closes tomorrow,” said an analyst tracking the deal.
ONGC Chairman and Managing Director RS Sharma, who is also the OVL chairman, declined to comment.
There have been reports about ONGC and the Indian government reconsidering the offer to buy out the Imperial Energy, whose oil and gas fields are located in Russia’s Siberia and north Kazakhsthan. OVL had also applied to the UK Takeover Panel for extension of the starting day for the offer as it was reportedly re-valuing the offer. The panel, however, did not grant OVL the extension and an Indian Cabinet panel re-approved the offer a day before the open offer began.
Under Takeover Panel rules, ONGC is not allowed to withdraw or reduce its bid.
Petroleum Minister Murli Deora is also reported to have lobbied hard with the Russian government to get approval for the deal.
The Russian government’s approval is needed for acquisition of companies which operate “strategic” businesses there.
Imperial plans to raise oil production from its Russian and Kazakhsthan fields to 80,000 barrels per day from the current 10,000 barrels per day, the company said on its website. It has probable and possible reserves of 3.4 billion barrels of oil equivalent.
