While multibillion-dollar takeover offers for large-cap energy players dominate the headlines, at the smaller end of the sector shale gas target Armour Energy is in the thick of M&A action, having switched support to a deal with a US company led by shale gas pioneer Aubrey McClendon and now rejecting a Chinese-backed bid.
Armour, which earlier this month had shifted its recommendation to back a $36.6 million full takeover offer from China's Landbridge at 20¢ a share, is now urging shareholders to instead vote in favour of a transaction with American Energy Partners (AEP), including a partial takeover at 25¢ a share.
The tussle for control of Armour's high-potential acreage kicked off in August when Landbridge's subsidiary WestSide Corporation made a cash off of 12¢ a share for Armour, almost double the 6.8¢ the junior's shares were trading at before the bid.
On Tuesday morning Armour shares, originally issued at 50¢ in the April 2012 spin-off from Brisbane-based DGR Global, were 2.7 per cent lower at 18¢.
DGR, which remains the Australian explorer's biggest shareholder, has agreed to vote a 19.99 per cent stake in favour of the AEP exploration farm-out deal at a meeting of shareholders to be held on Friday. DGR won't sell its stake in Armour into AEP's partial takeover offer for 13.62 per cent of the shares.
Oklahoma-based AEP is seeking to acquire the stake in Armour at a price at the lower end of a valuation by Armour's hired export BDO Corporate Finance, of 22¢-37¢ a share. The revised US proposal for a partial takeover compares with its original offer of a farm-in deal to buy 75 per cent of Armour's vast exploration acreage in the McArthur Basin in the remote eastern Northern Territory and western Queensland. That deal includes buying new shares in Armour at 20¢ apiece.
DGR, which owns 24.64 per cent of Armour, said it believes the combination of the AEP exploration farm-out and the partial takeover offer is superior to WestSide's offer and represents better long-term value for shareholders. It said that once the two deals with AEP were complete, AEP would hold 19.23 per cent of the enlarged Armour company.
DGR chief executive and Armour chairman Nicholas Mather said the AEP deals provide "long-term upside potential" for shareholders to participate in a substantial resource discovery in the Macarthur Basin, the potential of which he compared with oil provinces in Siberia, China and Oman.
AEP said the proposed proportional takeover offer for Armour "demonstrates its confidence in the farm out and its long term value for the Armour shareholders."
"The acquisition will also provide Armour shareholders with an opportunity to dispose of some shares at a material premium to the revised WestSide offer," the US firm said.
BDO has already found the farm-out deal with AEP to be fair and reasonable for Armour shareholders.
Armour's directors withdrew their earlier recommendation to shareholders to accept the WestSide offer.
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