A merger between Edinburgh oil and gas explorer Capricorn Energy and the Israel-based firm NewMed Energy Management is unlikely to go ahead after most of the Scottish company’s board resigned.

Seven of Capricorn’s directors quit following pressure from rebel shareholders over its proposed tie-up with NewMed, a subsidiary of the Delek Group.

NewMed said that it now believes “the probability for the closing of the transaction has significantly decreased”.

Chief executive Simon Thomson and chairwoman Nicoletta Giadrossi, together with Peter Kallos, Alison Wood and Luis Araujo will step down with immediate effect. Two other directors Keith Lough and James Smith will also leave.

A general meeting called by shareholder Palliser Capital for next week to replace the seven directors with six nominees will go ahead as planned.

However, a meeting to consider the proposed merger with NewMed has been adjourned until 22 February to allow a reconstituted board to assess the proposal.

Mr Lough remains on the board to ensure ongoing oversight of reporting obligations and other corporate governance requirements with the intention of stepping down from the board in advance of the general meeting on 1 February. Mr Smith, chief financial officer, will also step down before the meeting.

The company said it has been in discussions with the nominee directors to appoint them to the board immediately.

However, their preference is to wait until the general meeting. The continuing directors, including Cathy Krajicek and Erik B Daugbjerg, will engage with the nominee directors to ensure an orderly transition and appropriate continuity of governance. 

The new board is likely to include Chris Cox, who previously ran Centrica’s Spirit Energy, and Hesham Mekawi, formerly a regional president for BP in north Africa.

Today’s announcement came as a second shareholder group is advising investors to oppose the proposed merger of Capricorn.

Glass Lewis has joined ISS in recommending against the tie-up with Tel Aviv based NewMed which would see Capricorn shareholders receive $620 million in cash and 10% of the enlarged company.

Both proxy firms back 7.45% shareholder Palliser Capital’s campaign against the deal as it feels it undervalues the company.

The Glass Lewis research said Palliser had made a “convincing case” for the rejection of the NewMed proposal and for changes to the board.

ISS has already claimed a lack of “compelling strategic rationale” in the deal.

Following today’s developments 2.8% shareholder Irenic Capital is calling on Capricorn to return excess capital to shareholders, reduce excessive spending and maximise value from the company’s Egypt assets.

In a statement, Irenic said: “Since last fall, Irenic has opposed Capricorn’s proposed merger with NewMed and has encouraged the company’s board to terminate the transaction in favour of initiating an objective and speedy review of value-maximising alternatives.

“Today, we encourage Capricorn’s reconstituted board to immediately return the company’s excess capital and near-term contingent consideration receipts to shareholders, reduce the firm’s excessive overhead and end speculative exploration spending, and quickly maximise the value of the company’s Egypt assets (including its working capital balance).

“Irenic firmly believes such steps are the best path forward for Capricorn shareholders.”

Capricorn, which was launched as Cairn Energy by former Scotland rugby international Bill Gammell, last year was forced to drop a proposed a combination with Tullow Oil following shareholder opposition.

It has assets in the UK North Sea, Mexico, Suriname, Mauritania and Egypt.

Despite the turmoil, shares in Capricorn closed up 0.5p, at 245p.