Key investor Madison Ave says Capricorn worth more than planned Tullow deal

LONDON (Reuters) - Major Capricorn Energy investor Madison Avenue sees Capricorn's value at a minimum of 300 pence per share, above its value in a planned merger with Tullow Oil (LON:TLW), adding its voice to criticism of the deal by some Capricorn investors.

The deal would create a 100,000-barrel of oil equivalent per day, Africa-focused producer paid for with newly issued Tullow shares, but several Capricorn investors have said it undervalues Capricorn and mainly benefits Tullow.

When the planned merger was announced in June, it valued Capricorn's shares at around 210 pence each. Shares were around 234 pence in midday trading on Monday.

"Capricorn is worth more than 300 pence per share and perhaps significantly more, given the opportunities for value-improvement in Egypt," said Eli Samaha, managing partner at Madison Avenue Partners, which holds 6.3% of Capricorn.

Other Capricorn investors critical of the deal include Palliser and Kite Lake, with interests worth around 5% and 6.7%, respectively, and Legal & General Investment Management which holds around 4%, according to the companies and Refinitiv Eikon data.

Palliser had last week recommended that Capricon ditch the proposed merger, which it described as a "nil-premium takeover" by Tullow.

Newtyn Management, which holds 5.3% of Capricorn and did not respond to a request for comment, was quoted by Bloomberg as opposing the deal.

The deal needs approval from 75% of Capricorn and Tullow shareholders to proceed. The boards of both support the merger.

Some critical investors hold Capricorn shares via derivatives which can be turned into shareholdings.

One Capricorn investor, who asked to remain anonymous, said alternatives to the deal include finding another buyer who values Capricorn's Egypt assets higher or benefits from its advantageous tax position in Britain, as well as a special cash dividend.

A spokesperson for Capricorn said its board would continue to engage with shareholders.

"The Company is focused on delivering sustainable value for all stakeholders; the $5 billion returned to investors over the last 15 years is one example," Capricorn said.

Tullow declined to comment on Monday.

Jefferies analysts said in a note on Friday the deal was beneficial to Tullow, providing diversification, scale and improving the balance sheet.

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"We believe that with (Capricorn) trading at a c.20% premium to its implied merger valuation, there are still question marks around deal terms," Jefferies said.

In a previous note about Capricorn, Jefferies analysts had called the merger "positive" and bringing "greater scale and purpose".