The £492 million bid – which the board says it is likely to recommend - potentially provides an exit for investors in Petroceltic. The latter itself merged with Melrose Resources back in August 2012 to create a combined entity focussed on the Middle East and North Africa worth around £350 million.
This looks a reasonable return a little more than two years later although it is worth noting the group raised $100 million in a placing back in June (the same month the company exited our Plays portfolio having outlived its 12 month shelf life). Opposition to the placing from 20% shareholder Swiss hedge fund Worldview Capital Management was fended off by concessions on board changes and the group's relationship agreement with its chairman Robert Adair.
Broker Westhouse Securities suggests Worldview and other major shareholders 'are likely to have been involved in engineering this proposed deal,' and as such it should be accepted. Putting its buy recommendation and 240p price target under review Westhouse adds: 'We do not believe that a competing offer will emerge, however, we would suggest that this news will foment further M&A speculation in the sector. PCI's most directly comparable peer is Circle Oil (COP:AIM) with operations in MENA and our core NAV (net asset value) for Circle is 35p.'
For its part Turkmenistan producer Dragon has long been criticised for its inefficient balance sheet with nearly $2.5 billion of cash sitting in its accounts at the half year stage. Petroceltic's main asset – the gas development Ain Tsila - is located in Algeria where Dragon was awarded new licences on 30 September.