NZ Oil & Gas says Zeta partial takeover undervalues company
New Zealand Oil & Gas independent directors have recommended shareholders reject a partial takeover offer from ASX-listed Zeta Resources because it undervalues the company and favours capital return over investment for growth.
An independent valuation of NZOG by Northington Partners values the company at 78-93c a share, above Zeta's 72c offer, which the directors said was inadequate and "appears to take no account of exploration upside, which while risky, could be significant."
Zeta is seeking 42% of NZOG's fully and partly paid shares it doesn't already own, subject to scaling. Zeta, which is advised by NZOG director Duncan Saville's ICM unit, has lock-up agreements with H & G, Bermuda Commercial Bank, Pan Pacific Petroleum and UIL. It has also pitched its bid with the lure of another $50 million capital return to shareholders in the next six months. NZOG shares rose 0.7% to 73c today and have gained 15% this year.
NZOG's target company report says the company's current strategy is to seek further investment in exploration and development opportunities over the next 12-to-18 months, which it believes is a superior strategy to returning cash to shareholders and wouldn't be viable if the capital return was made.
"Although exploration carries risks, and if it is not successful the cash spent on it will be gone, outsized returns are available in return for that risk," chairman and independent director Rodger Finlay said.
The appearance of OGOG, the oil and gas division of Ofer Global Group, with a proposal to offer 77c a share for no more than 70% and at least a controlling stake "further supports the view that the Zeta partial offer is too low," he said. OGOG has yet to make a formal offer.
"The independent directors believe the company's strategy and vision for its future is sound," Mr Finlay said. "NZOG has shown it can manage your investment wisely. In the difficult oil price environment of the last few years it has returned a cumulative $265 million of cash to shareholders."