According to Ophir, the deal would be a share exchange offer, meaning that Salamander shareholders would receive Ophir shares, not cash, in exchange for their Salamander shares.
The share-only nature of the proposed deal isnt a really a surprise, given Ophirs lack of any regular revenue streams, but the rumoured 106p valuation seems rather opportunistic Octobers oil price slide sent Salamander shares down to around 80p, but for much of the year Salamanders stock has been trading at 100p.
Does the deal make sense?
Salamanders share price has suffered this year, due to market sentiment, some disappointing drilling results, slow production growth and most recently the falling price of oil.
The firms finances have become stretched, with net gearing of more than 100% and flat revenues meaning that Salamanders July deal to sell a 40% interest in flagship asset, the Greater Bualuang Area, to Malaysian firm SONA for $280m, was well received by shareholders.
However, investors had been hoping for an outright takeover deal. Reported approaches earlier this year came to nothing, but Salamanders board now appears to have a second bite of the cherry, as it is currently in sale talks with both Ophir and Spanish firm CEPSA.
For Ophir, the logic behind the deal is clear: the firm says by acquiring Salamander, it can become more financially self-sufficient, reinvesting cash flow from Salamanders production assets into its exploration activities. Ophir is also keen to expand into South-East Asia, and has recently acquired exploration assets in Indonesia, where Salamander already operates.
Its worth noting that Ophirs chief executive, Nick Cooper, co-founded Salamander back in 2005, so knows the company very well.
Dr Cooper also still reportedly owns 850,000 shares in Salamander, meaning that a successful deal could earn him a windfall of 480,000 shares in Ophir, at an attractively low price, and would increase his total Ophir shareholding by 60%, to 1.25 million shares.
Ophir looks attractive at todays share price, and I believe the firm could be a profitable investment over the next 5 years.
In contrast, Salamanders near-term growth prospects look limited, at best, and in my view, the firms board should use the bid interest from Ophir and CEPSA to negotiate the best possible deal for shareholders.
Salamander looks likely to be sold, but buying a company on takeover hopes is always risky.
If you are aiming to build a million-pound retirement portfolio, then I’d suggest ignoring takeover gossip and focusing on buying undervalued companies that are poised to deliver a significant re-rating.
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Roland Head 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.