Sinopec makes $1.9 billion offer for Canadian oil firm

Sinopec has launched the biggest Chinese takeover of a listed North American company by making a bid for Tanganyika.
Sinopec International Petroleum (SIPC), the international trading arm of Chinese energy giant Sinopec Corp, has launched a cash offer worth $1.9 billion for Toronto-listed Tanganyika Oil. In what is being billed as the largest takeover of a North American public company by a Chinese entity, Sinopec is offering C$31.50 per Tanganyika share, a premium of 48% over the Canadian companyÆs 30-day average trading price on the Toronto Stock Exchange and a 21.2% premium to Wednesday's close of $26.

The offer price gives Tanganyika, which is also listed in Stockholm, an implied enterprise value of $1.8 billion.

SinopecÆs offer has been recommended by the board of Tanganyika and shareholders holding 16.2% of the Canadian company have pledged their shares to the offer.

Cash-rich SIPC will fund the acquisition through internal resources and the deal is not conditional upon any financing arrangements.

On the price paid by Sinopec, people close to the deal say that the 48% premium is fair value considering that the companyÆs share price has been volatile and has consistently risen to the high-20s range. The stock rallied 12% to C$29.15 yesterday on the back of the takeover offer.

SIPC is a wholly owned subsidiary of China Petrochemical Corporation (Sinopec Group) and undertakes overseas investments and operations in the upstream oil and gas sector. Tanganyika has considerable oil drilling operations in Syria.

Sinopec, like other Chinese energy companies hunting internationally for oil assets, considers TanganyikaÆs Syrian assets as having potential for further development.

ôTanganyika has conducted a tremendous volume of work to enhance the Syrian assets over the past five years. SIPCÆs world-class scale and expertise promise continued growth and enhancement to this asset base,ö says Gary Guidry, president and CEO of Tanganyika.

ôThis transaction is an important component of Sinopec GroupÆs strategy to become a diversified global resource provider. We believe that our strong technical experience and our local relationships will serve to maximise the underlying value of these very attractive assets,ö says Zhou Baixiu, president of SIPC.

SIPC and Tanganyika are expected to get regulatory approval from Canadian and Swedish authorities within 35 days, after which a tender offer date would be set, according to people with knowledge of the situation. SIPC does not foresee any issues with the Chinese regulatory authorities and expects to gain their approval before the December 24 deadline. SIPC has agreed to pay a break fee of C$65 million in the event that all the approvals required from the Chinese authorities are not obtained by that date.

SIPC will mail the formal documents of the offer to shareholders in late October and the offer is expected to be open for no less than 35 days.

Lehman Brothers is acting as financial advisor to SIPC and Vinson & Elkins LLP and Stikeman Elliot LLP are the legal advisors. Tanganyika is being given financial advice by Scotia Waterous, while Cassels, Brock & Blackwell are acting as legal advisor.
¬ Haymarket Media Limited. All rights reserved.
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