A takeover approach is usually flagged as a catalyst for a rising share price but in the case of North Sea oil & gas firm Lochard Energy (LHD:AIM) it has prompted a 17.2% fall in the stock to 4.56p.
The reason: the bid from its AIM-quoted peer Parkmead Group (PMG:AIM) came in at a discount to a share price which had already lost more than 40% of its value in the last year. The £14.5 million all-share offer from Parkmead values Lochard at 4.9p compared with a closing price last night of 5.5p.
Why then have the Lochard directors recommended the offer? Acknowledging the precariousness of its balance sheet, management had commenced a formal sale process in September 2012. Lochard has been dogged by its convoluted capital structure and significant liabilities which have prevented it from exploiting its assets (for example it allowed its Thunderball licence to lapse earlier this year) and which Parkmead must now take on. These include production-linked repayments on a $28 million loan of which $10.5 million had been repaid by the last count at the end of February.
The reason for Parkmead's interest is Lochard's 10% stake in the producing North Sea oil field Athena which has current output of around 11,000 barrels of oil equivalent per day and according to the acquirer will boost its forecast production for the second half of this year by 400%.
The consolation for Lochard shareholders is they get the chance to be part of an enlarged group headed up by Tom Cross who has a track record of creating shareholder value in the sector. Cross initially set up Dana Petroleum with just £185,000 in 1994 and then led the company for more than 15 years. It was eventually nabbed in a hostile takeover in September 2010 by the Korean National Oil Company (KNOC) for an eventual price tag of £1.87 billion.