Capricorn – NewMed merger plans come to naught

UK-based Capricorn Energy, formerly known as Cairn Energy, has dropped the previously announced merger agreement with Israel’s NewMed Energy, former Delek Drilling, following board changes.

Back in September 2022, Capricorn Energy and NewMed announced merger plans. While NewMed saw the merger with Capricorn as a way to create a “leading East Mediterranean energy company,” Capricorn believed it would establish a “MENA gas and energy champion and one of the largest upstream energy independents listed in London.” The completion of the merger, subject to approvals and conditions, was expected in 1Q 2023.

However, the plot thickened after a Capricorn shareholder, Irenic Capital Management, which has a 2.8 per cent stake in Capricorn Energy, voiced concerns over the proposed deal to the board of directors, urging them to abandon Capricorn’s proposed merger with NewMed, as it remains “profoundly unfavourable to Capricorn shareholders.”

The next plot twist came after another shareholder, Palliser Capital, formally requisitioned the board of Capricorn Energy to convene a general meeting of shareholders (EGM), enabling shareholders to vote on removing seven existing board directors and appointing six independent candidates to replace them, as some shareholders disapproved of the NewMed merger and “lost trust in the existing directors.”

On 1 February 2023, Capricorn announced the appointment of six new members to the board of directors and the intention of the board to conduct a comprehensive strategic review of the firm’s business and potential directions for the future. On the same day, the general meeting convened in connection with the proposed combination with NewMed Energy was adjourned until 22 February 2023.

In light of Capricorn Energy’s board stepping down, Irenic Capital called on the company to return excess capital to shareholders, reduce excessive spending and maximise value from the company’s assets in Egypt, with Adam Katz, Co-Founder and Chief Investment Officer of Irenic, explaining: “Since last fall, Irenic has opposed Capricorn’s proposed merger with NewMed and has encouraged the company’s board to terminate the transaction in favor of initiating an objective and speedy review of value-maximising alternatives.”

In an update on Wednesday, 15 February 2023, Capricorn’s revamped board said that “an immediate priority” was to review the board’s position towards the NewMed transaction, bearing in mind the views that proxy advisory agencies and a significant number of shareholders had expressed in relation to the merger, including their unwillingness to support it on its “current terms.”

Since the board resolved to advise shareholders to vote against the NewMed transaction, Capricorn and NewMed have mutually agreed that the business combination agreement would be terminated with immediate effect.

“The board believes this action is necessary to enable the consideration of all potential strategic options for the company, including the material return of capital to shareholders and potential engagement with respect to alternative options,” highlighted Capricorn.

In a separate statement, NewMed Energy confirmed that it had mutually agreed with Capricorn to terminate the proposed merger with immediate effect, due to the recent developments at Capricorn, including the fundamental change in the composition of the UK firm’s board and senior management.