LONDON (Reuters) -Legal & General Investment Management, a significant shareholder in Capricorn Energy and Tullow Oil, said on Monday it has “strong reservations” about a proposed merger between the two companies.
Tullow and Capricorn agreed an all-share merger earlier this month in a deal worth around $827 million, paid for in newly issued Tullow shares.
The deal, which still needs shareholder approval from both groups, would allow indebted Tullow to end a payout drought for its shareholders with the aid of Capricorn’s cash.
“In our capacity as a responsible investor, we have strong reservations about the proposed transaction,” LGIM, the investment arm of UK insurer Legal & General, said in a statement.
“It is our opinion that there is no clear strategic rationale for the combination.”
The merger would increase the exposure of Capricorn, a gas-focused producer, to oil, LGIM said, adding it did not believe the deal would lead to major cost savings.
The proposed exchange ratio was “highly unattractive to Capricorn shareholders”, LGIM said, adding it was “surprised and disappointed” that Capricorn’s board had recommended the deal.
LGIM has a 3.91% stake in Capricorn and a 1.74% stake in Tullow.
It is the number 8 shareholder in Capricorn and no. 16 shareholder in Tullow, according to Refinitiv Eikon.
Stifel analyst Chris Wheaton said in a recent note that the deal would be much better for Tullow and described it as “effectively a rights issue disguised as a merger”.
Tullow shares were down 1.9% while Capricorn’s were unchanged, compared with an index of European oil and gas producers that was down 2%.
The companies did not immediately respond to requests for comment.
(Reporting by Carolyn Cohn and Shadia Nasralla; Editing by Muralikumar Anantharaman)
