- Open letter expresses ‘unmitigated disgust’ with Serica’s proposed acquisition of Tailwind Energy

- Writer claims entities he manages have a beneficial interest of 1.3 million shares

- Company had hailed the deal as ‘increasing scale and diversity of asset base’

An open letter was published online this morning voicing strong criticism of Serica Energy’s (SQZ:AIM) £367 million acquisition of fellow North Sea oil and gas firm Tailwind Energy.

The deal was announced before Christmas (20 December) and was comprised of £58.7 million in cash and shares which would represent a little under 30% of the enlarged share capital. Under the terms of the deal Serica is also set to absorb Tailwind’s net debt of £277 million, while Tailwind owner Mercuria, a multinational commodity trading outfit, would take a 25.2% shareholding in Serica.

Combined production is expected to total up to 45,000 boepd (barrels of oil equivalent per day), compared with around 26,000 boepd for Serica in 2022. Tailwind’s largely oil-based portfolio is also seen as complementing Serica’s natural gas assets and the deal will bring significant tax losses which can be offset against future revenue.

Hailing the agreement at the time, Serica CEO Mitch Flegg said: ‘The transaction achieves our strategic objective of materially increasing the scale and diversity of our UKCS portfolio of assets. The Tailwind portfolio also brings multiple organic investment opportunities for further material near-term growth in reserves and production.’

However, Jeremy Raper of Raper Capital, who says entities he manages have a beneficial interest in 1.3 million shares, has written to Serica’s chair Antony Craven Walker heavily criticising the deal.


Raper said: ‘I am writing today to express my unmitigated disgust with the contemplated acquisition of Tailwind Energy. In my two decades in the markets, I cannot recall a transaction so completely irredeemable as to fail even the most perfunctory of governance norms; nor one so totally at odds with the wishes of its shareholders.’

Certainly, investors have not responded positively to the announcement of the deal with the shares extending losses seen in recent months in the wake of its announcement.

He noted that five months ago the board rejected a combination with Kistos Energy which would have delivered 425p per share in value - a number he compares unfavourably with putting up 29.8% of the pro-forma share capital at 278p in the Tailwind transaction.

Raper added that this was being done ‘all whilst surrendering de facto control of the company, to boot! In what warped, alternate reality could any fiduciary consider this an acceptable outcome, much less trumpet such an exchange as a “win” for the suffering masses?’

He observed that Mercuria becomes, in effect, the controlling shareholder with the means to reject any and all subsequent merger proposals that may not meet its own narrow interests. He also argued that descriptions of the deal as between 14% and 23% accretive on a per share basis are misleading - largely because Serica has a significant net cash position while Tailwind is carrying significant borrowings.

Notably specialist broker SP Angel commented a few days ago that: ‘Given recent E&P shareholder activism to deals that promise jam tomorrow, the jam today offered by Serica’s expected £460 million cash pile at the 2022 year end may still foment discontent to the tie-up.’

You can read the letter in full here. Shares has contacted Serica for comment.


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Issue Date: 12 Jan 2023