Ophir Energy (LSE: OPHR) an upstream oil and gas exploration company this morning announced that agreement has been reached for the acquisition of theSouth East Asia-focused independent exploration and production companySalamander Energy (LSE: SMDR).
Ophirs share price is currently down just over 1%, to 168p.
The boards of the two companies say there is compelling strategic logicfor the two businesses to combine that will substantially benefit both sets of shareholders. The enlarged Ophir will,the companysays,be able to exploitdiversified funding sources, which will significantly enhance the long-term sustainability of the combined business.
Ophir also says that the purchase of Salamander will enhance its operating capability in both Africa and South East Asia, and that thecombined company willgives itsshareholders exposure to 21 production, development and exploration blocks in South East Asia, in additionto Ophirs extensive activitiesin Africa.
Under the terms of the transaction, Salamander shareholders will get 0.5719 new Ophir shares for each Salamander share they hold, and they willown approximately 20.9% of Ophir. That represents an indicative value of115.9p for each share inSalamander a 44.5% premium on its closing share price on 24 October, which was the last business day before the offer period started.
Commenting on the acquisition, Ophirs non-executive chairman, Nicholas Smith, said:
Combining Ophir and Salamander will create a balanced African and South East Asian operating platform, designed to deliver Ophirs exploration-led strategy across both regions. We see many value creating opportunities in both Africa and South East Asia that can be swiftly accessed by leveraging Ophirs exploration expertise with Salamanders operational strength. Furthermore, Salamanders anticipated growing production will allow Ophir to diversify its funding sources, and to continue to monetise assets for the benefit of shareholders.
Ophirs shareholders will certainly be hoping that the acquisition will benefit them Ophirs share price is down 52% on this time last year, compared with a 1.3% gainbythe FTSE 250 index. And the longer-term story is much the same, with Ophir having fallen 33% over the past five years, whilst the FTSE 250 has risen 13%.
It highlights how fast-growth small-caps and beaten-down bargains are all fertile candidates to produce ten-fold returns.
Jon Wallis has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.