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Dissent ‘threatens Roc-Horizon deal’

• MATT CHAMBERS
• THE AUSTRALIAN
• JULY 07, 2014 12:00AM

HORIZON Oil chairman Fraser Ainsworth says it will be a travesty for both companies if Roc Oil shareholder Allan Gray torpedoes a planned $800 million tie-up between the two.
Allan Gray, the biggest Roc shareholder at 20 per cent, has objected to the structure of the friendly Roc-Horizon scrip merger and called for a vote for Friday to change Roc’s constitution so shareholders can vote on the deal.
“The idea that one particular shareholder should be able to torpedo something like this when the appointed (Roc) board, after very careful consideration, takes a strong view it’s in the interest of shareholders as a whole, I’m really offended at that prospect,” Mr Ainsworth told The Australian.
“If the (Allan Gray) resolution should be passed, and I don’t have a view on the likelihood of that, it would most likely mean the merger would be off. With all of the implications of that, apart from anything else, it would be a travesty for both companies.”
He stressed that if the merger was voted down by Roc shareholders they would be exposed to liabilities under the merger deal.
The agreement, through which Roc chairman Mike Harding and Horizon chief executive Brent Emmett retain their positions in a merged company, is structured so only shareholders of the larger Horizon get to vote.
Mr Ainsworth said the deal would provide Roc shareholders with good options to participate in Papua New Guinea gas expansions, while giving Horizon shareholders access to bigger cashflows for expansions and dividends. “It’s about being more robust, it’s about scale, and there’s a pretty powerful argument that if you look at the metrics, the sum of the two will be greater than the companies individually,” he said.
Mr Ainsworth said the new company intended to pay dividends. “Roc’s cash position means we want to start paying dividends as soon as we can,” he said. “Horizon shareholders have had a pretty long wait (for dividends).”
Superannuation firm Hostplus, which owns about 2 per cent of Roc (some through Allan Gray), says it will vote in favour of the Allan Gray resolution on principle, rather than the merits of the takeover. “As a shareholder, we feel we deserve the right to vote on what is a very significant change in the company, but the way it is structured, we are being deprived of that fundamental right,” Hostplus fund manager Dmitry Capel said.
“It’s a second-rate outcome from a corporate-governance perspective.”
On Friday, Deloitte clarified a line in its Horizon-commissioned independent expert’s report that said Horizon shareholders were receiving a 17 per cent to 28 per cent implied control premium in the deal. Deloitte said there was also an implied premium for Roc holders of between 20 per cent and 24 per cent.
But Deloitte’s analysis indicates that, while all shareholders benefit, Horizon shareholders are getting better value.
Based on the midpoint of its valuation of both company’s assets, Deloitte estimates that Roc shareholders are bringing 46 per cent of the $1.05 billion value of the merged company but getting only 42 per cent of the equity.
Meanwhile, Horizon shareholders receive 58 per cent of the company but bring only 54 per cent of the value.
Originally published as Dissent ‘threatens Roc-Horizon deal’