Norwegian Energy Company ASA (Noreco – OSE:NOR), has today proposed to Det norske oljeselskap ASA (Det norske – OSE:DETNOR) a combination of the two companies through a share-for-share merger. The proposed exchange ratio is 2.44918 Noreco shares per each Det norske share, implying a 52.5% ownership in the combined company for Det norske shareholders. Noreco’s proposal gives a 9.3 % premium to the 6 months volume weighted average trading prices. Noreco believes the proposed terms to be fair and balanced, and is looking forward to discussions with Det norske.
Noreco has over the last few months considered the possibility of a combination with the Det norske. Noreco acknowledges that new directors and a new board in Det norske were appointed yesterday. Based on industrial considerations and with due regard to the companies’ employees, it is however Noreco’s view that it is in both companies’ interests to as quickly as possible evaluate whether there is basis for a potential combination. Noreco has therefore found it appropriate and necessary to present the proposal now, also to avoid further market speculation.
Noreco firmly believes that a combination will serve the interest of all shareholders and employees of both companies, and it is Norecos impression that there is broad shareholder support for a merger.
Compelling industrial logic
Combining Noreco and Det norske will create the largest independent E&P company on Oslo Børs. The combined company will have a strong portfolio of producing fields, discoveries and exploration licenses in Norway, Denmark and the UK. The combined production from 10 fields is approximately 18 000 barrels of oil equivalents per day. A total of 25 discoveries will create significant value, and there is extensive exploration upside from drilling the best prospects in the combined exploration portfolio. The combined company will have a very strong team of oil and gas professionals to create shareholder value from the large asset portfolio.
Strong financial logic
The combined company will be exceptionally well equipped to meet the challenges in the financial market, with high cash flow from production and a strong balance sheet. The combined company have a market capitalization in excess of NOK 4 billion based on current market prices and no need for additional equity funding for the contemplated investment program. It will have a size to attract a broader shareholder base, and be well positioned to exploit new opportunities and to play an active role in the future consolidation in the North Sea region. Further, the company will be in a better position to progress discoveries to production within Norway. The transaction creates value at today’s oil prices, and the company will have significant exposure to an upswing in the oil price.
Noreco acknowledges, that based on the industrial and financial logic and the proposed strategy, there seem to be broad shareholder support for a combination of Noreco and Det norske.
Main terms proposed
Having thoroughly reviewed the rationales of a merger with Det norske, Noreco strongly believes that a combination will create significant shareholder value. Noreco is of the opinion that the proposal put forward is fair and balanced for shareholders of both companies. Det norske’s shareholders are offered a premium to 3 and 6 months volume weighted average trading prices (VWAP). Noreco’s merger proposal includes the following main terms:
The strategy for the combined company will be to build a leading, full cycle E&P company in the North Sea region. The company will continue to grow production, and will focus exploration and development activities on material assets delivering sustained growth. The asset portfolio will be actively managed through acquisitions and divestments, and further consolidation in the industry will be pursued in order to create and maximize shareholder value.
* Exchange Ratio:
Based on recent trading prices, third party valuations and analyst estimates, financial modelling and assessment of underlying assets, Noreco proposes an exchange ratio and merger consideration of 2.44918 Noreco shares per each Det norske share, implying a 52.5% ownership in the combined company for Det norske’s shareholders. The proposed exchange ratio represents a premium in favour of shareholders in Det norske of 2.2% over 3 months VWAP and 9.3% over 6 months VWAP. In Noreco’s opinion, the proposed exchange ratio is strongly supported by underlying values and financial modeling of the companies which has also taken into account the difference in capital structures. Third party valuations and analysts’ estimates also strongly support the assessment of underlying values on which the exchange ratio has been based.
* Board of Directors:
To be nominated by the companies’ respective nomination committees jointly.
* Executive Management:
Noreco to nominate the CEO and Det norske to nominate the COO.
* Employees and Locations:
The merger would be a merger for growth, with an aim and ambition to keep and retain the companies’ combined human capital going forward. The combined company will maintain offices in Stavanger, Trondheim, Oslo, Harstad and Copenhagen.
The combination will be structured as a legal merger (share for share, with no cash consideration) pursuant to the Public Limited Companies Act, to be approved by the companies’ respective general meetings with 2/3 majority. The combination will not involve any need for additional fundraising.
Noreco currently awaits Det norske’s response to the proposal, and looks forward to discussions with Det norske’s Board of Directors in due course. It is Noreco’s ambition that, should Det norske share Noreco’s views on the rationale of a combination, the two Boards of Directors can soon reach a mutually acceptable merger plan to be presented to the respective shareholders of the companies for approval. Following successful agreement on a merger plan, both companies will need to call for an Extraordinary General Meeting to approve the merger (2/3 majority required). The merger plan will be distributed to the shareholders of both companies no later than one month prior to such meetings. A joint information memorandum will also be prepared. Provided the merger is approved by the Extraordinary General Meetings of both companies, the merger can be expected completed following a statutory two month creditor notice period. Should a mutually agreed merger plan be in place by the end of February, completion of a merger (subject to shareholder approval) could be expected within the end of Q2 2009.
Noreco will hold a press conference today at 11:00 CET at Noreco’s offices in Stavanger, where the merger proposal will be presented by CEO Mr Scott Kerr and the Chairman Mr. Lars Takla. The presentation can also be followed by web cast on Noreco’s web page www.noreco.com, both live and in an archived version.
Noreco will further host an analyst conference call with possibilities for questions and answers today at 14:00 CET. To join the conference please call 800 888 60 for participants in Norway or +47 23 10 93 50 for participants outside Norway (pin code: 943705). Pareto Securities AS is acting as financial advisor to Noreco. Advokatfirmaet Schjødt DA and Arntzen de Besche Advokatfirma AS are acting as legal advisors.
Stavanger, 3 February 2009
The Board of Directors of Norwegian Energy Company ASA
For further information, please contact:
Lars Takla, Chairman of the Board (+47 992 83 851)
Scott Kerr, Chief Executive Officer (+47 992 83 890)
Einar Gjelsvik, Vice President Investor Relations (+47 992 83 856)