Oil deal

Gammell’s creation Capricorn Energy merges with Tullow

Capricorn Energy
Capricorn was founded as Cairn Energy by Sir Bill Gammell

Capricorn Energy, formerly Cairn Energy, has become the latest Scottish listed company to surrender its independence, after agreeing to a merger with Tullow Oil.

The $827m (£657m) all-share merger will create an Africa-focused energy company with a material and diversified asset base and a portfolio of investment opportunities delivering visible production growth.

Capricorn shareholders will receive 3.8068 new Tullow shares for each Capricorn share held, with Capricorn shareholders to own 47% and Tullow shareholders to own 53% of the combined group on completion.

The deal delivers a combined group with robust cash generation and a resilient balance sheet, realising pre-tax net cash cost synergies of $50m per annum. The combined group is promising to pay at least $60m (£48mn) a year in dividends. 

Founder Sir Bill Gammell and current CEO Simon Thomson

Capricorn shares closed up 1.16% (2.3p) at 201.7p while Tullow Oil was down 2% (1.1p) at 53.45p.

Almost 11 years after succeeding Cairn founder and former rugby international Sir Bill Gammell as CEO, Simon Thomson will step down on completion and will become chair of the integration steering committee.

The headquarters of the combined group will be at Tullow’s offices in London and the group will also retain premises in Edinburgh.

The deal comes just months after Capricorn – which adopted the current name in December last year – resolved a long-running tax dispute with the Indian government, signalling a special dividend of $500m to its shareholders earlier this year, but has now suspended a $200m share buyback programme in light of the deal. It is said to be sitting on net cash of up to $800m. 

Tullow has been in a more precarious position and to ease its balance sheet pressure it sold assets in Equatorial Guinea and Gabon last year for an initial cash price of $140m. 

Commenting on the merger, Mr Thomson said: “Our two companies share a track record and continued vision of responsible energy production to support the economic and social development of our host communities.

“This combination will allow the two companies to accelerate investment in new opportunities across the continent, while retaining a resilient balance sheet and delivering attractive returns to shareholders.”

While some analysts questioned the rationale behind the deal, Mark Wilson at Jefferies said it was a chance for both companies to find “strong individual identities post material changes to strategy”. Alex Smith at Investec said the combined company would have a “deep portfolio of incremental high return investment opportunities in Ghana, Egypt, Gabon, and Côte d’Ivoire”. 

Russ Mould, investment director at AJ Bell, said: “A merger of equals between oil and gas firms Capricorn Energy and Tullow Oil reflects how far both have fallen since their glory days – when they were both propelled by exploration success to the ranks of the FTSE 100. 

“Even as a combined entity they are a long way short of that today but given Tullow’s very existence seemed under threat at one stage and Capricorn was hamstrung by a dispute with India over tax, shareholders in both companies will hope the tie-up can lay the foundations for renewed growth.”

The deal follows the recent loss of other major stock market listed Scottish firms Aggreko, Stagecoach and Menzies.



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