Capricorn terminates NewMed merger after activist pressure

Capricorn Energy has terminated plans to merge with NewMed Energy, cementing a victory for the activist investment company that had campaigned against the deal.

The decision comes after the UK company’s directors including its chief executive and chair quit en masse last month following a battle with Palliser Capital, which opposed the deal with the Israeli natural gas group.

Capricorn, previously known as Cairn Energy, said in a statement on Wednesday that its board “is mindful of the overwhelming mandate it has been given by shareholders” and that it had “mutually agreed” with NewMed to end their combination agreement.

Capricorn said it would now issue its latest annual results on April 27.

The merger’s collapse marks the second failed deal for Capricorn within the last few months after the company in September scrapped a plan for a $1.4bn merger with rival Tullow Oil in favour of the NewMed deal.

Capricorn investors had spoken out against the Tullow deal, arguing that it lacked strategic rationale and was stacked towards Tullow’s shareholders.

However, Capricorn’s pivot to pursue a deal with NewMed also faced opposition.

Palliser, which owns 7 per cent of the shares in Capricorn, launched a campaign in December against the deal, preferring the company to distribute much of its £700mn in net cash to shareholders.

The activist investor said at the time its plan offered a “clear path” to unlocking 400p per share in value for Capricorn shareholders in the medium term.

Capricorn said in September that the NewMed deal — under which its investors would own 10.3 per cent of the enlarged group and would also receive a $620mn special dividend before the transaction completed — valued its shares at 271p.

Capricorn’s shares were trading down slightly in early afternoon trading in London on Wednesday at about 248p a share.

The official end to the tie-up follows mounting pressure against the deal after large shareholders came out in support of Palliser’s proposals and proxy advisory groups ISS and Glass Lewis advised other investors to vote against the merger.

NewMed said in January that given “the resignation of most of the Capricorn board members, the partnership estimates that the probability for the closing of the transaction has significantly decreased”.

Capricorn early this month confirmed six new board members, including interim chief executive Christopher Cox, the former chief executive of Centrica’s oil and gas production arm Spirit Energy. The new board then undertook a strategic review of the company’s business.

Edinburgh-based Capricorn had been hoping for a smoother period after the company in 2021 finally brought to a close a near decade-long tax battle with the Indian government.