Shares in San Leon Energy (LSE: SLE) are surging today after the company confirmed speculation that its in discussions with a party interested in making an offer for it.
The company was forced to revealed that its intakeover discussions after media reports emerged over the weekend claiming that bidders were circling the company. According to press speculation, a bid in the region of 50m for the company islikely to materialise in the next week.Sources said that at least one potential buyer is circling the business, with management already engaged in preliminary talks.
Whats your offer?
Its likely any bid for the company would have to beabove the 80p a share paid by investors at the companys last 29m capital raise earlier this summer. City chatter suggests a bidder would have to go above 1 a share to stand a chance of success.
Unfortunately, todays press release from San Leon didnt shed much more light on any potentialoffer. The release only noted that board of San Leon today confirms that it has received an approach from a possible offeror, which may or may not lead to an offer being made for San Leon. The release also included the standard takeover disclosure statement,there can be no certainty that an offer will be made or as to the terms on which any offer might be made.
Will a deal materialise?
2016 has been a transformational year for San Leon. The company has gone from an early stage oil explorer to a fully fledged production company after taking on an active role as a partner in the Nigerian OML 18 asset. Further, San Leonstruck gas at its Rawicz 12 well in south-western Poland earlier this year, and management estimates the revenues from this find alone could be more than $150m.
So the mysterious bidder could be looking to swoop on San Leon and take advantage of the firms depressed share price, gobbling up the Polish asset, the Nigerian interests and the rest of the companys portfolio of exploration assets around the world at a rock-bottom price.
If no deal emerges,theres no reason why San Leon cant survive as an independent entity and continue to develop the assets itself. This scenario may even result in better long-term results for investors. After raising 170m from investors to fund its Nigerian production agreement, San Leons management has stated the company will return50% of free cash flow from Nigeria to shareholders via either share buybacks or dividends for five years. This shows management is actually committed to achieving the best returns for investors.
Still, as of yet, the market hasnt rewarded San Leon with the valuation it deserves for this commitment. It looks as if an opportunisticbidder is seeking to take advantage of this and swoop on San Leon before the firms shares re-rate higher.
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