RRE – Possible Offer for Independent Oil & Gas plc

RockRose (LSE: RRE), the independent oil and gas company, announces that, on 1 March 2019, it made a formal approach to the board of directors of Independent Oil and Gas plc (“IOG”) with a proposal for an all cash takeover offer for IOG (the “Proposal”).

The terms of the Proposal were that RockRose would offer 20p in cash per ordinary share (“IOG Share”) for the entire issued and to be issued share capital of IOG (the “Possible Offer”) which would value the total share capital of IOG at £26.6 million.  The Possible Offer, if made, would represent a premium of 51 per cent. to the closing price of IOG on 26 February, the day of the initial approach by RockRose to IOG and a premium of 58 and 44 per cent to the 30 and 60 day volume-weighted average price (“VWAP”) respectively, up to the period ended 26 February.

The Proposal was rejected by the board of directors of IOG, who have expressed an intention to continue in their endeavours to find a strategic partner to develop their assets.

RockRose believes that any Possible Offer would be compelling for IOG shareholders as:

·    It would allow shareholders to realise an immediate cash upside on their shareholdings at a significant premium to the current market price

·    Any Possible Offer would be wholly funded out of RockRose’s existing cash resources

·    RockRose considers that it would be challenging for IOG to independently fund the field development capital expenditure of c.£450 million without an industry partner in light of its current market capitalisation – particularly in the current equity market conditions

·    Any Possible Offer removes the risk for IOG shareholders of a protracted or unsuccessful farm-out process

·    Even in the event of a successful farm-out, RockRose considers it likely that significant funding and dilution risk would remain for IOG shareholders as they sought to fund their remaining share of the assets

·    RockRose also expects that it is likely that IOG would have to give up operatorship of the assets as part of any farm-out process thus leaving it with a non-operating minority interest

·    RockRose considers it unlikely that cashflows for IOG’s shareholders would flow from the assets until 3-4 years from the completion of any farm-out and as a likely non-operational minority interest holder, any such timetable would be largely outside of the control of IOG.  As such, RockRose believes that the market would allocate a small percentage of the underlying value of the fields unless and until commercial development is achieved

·    In addition, public sources suggest that certain amounts of IOG’s debt owed to London Oil and Gas Ltd. (“LO&G”) may become payable shortly which RockRose believes would require IOG to secure additional funding to avoid the risk of default

RockRose had considered the opportunity to partner with IOG but believes any such partnership remains problematic in light of the financing arrangements which IOG has in place with LO&G (in turn financed by London Capital & Finance Limited (in administration)), and the current financial position of IOG in relation to the capital expenditure necessary to fulfil the potential of IOG’s assets even in the event that IOG was able to conclude a favorable farm-out transaction.

In accordance with its obligations under Rule 15 of the Code, in the event that RockRose makes an offer for the ordinary shares it must also make an appropriate offer to holders of certain other outstanding securities. LO&G holds dilutive securities granted in connection with part of IOG’s outstanding debt and further outstanding debt to LO&G comprises loan facilities which are convertible into the voting equity share capital of IOG. The exact terms of these convertible securities and conversion rights are unclear and could result in a significant number of IOG Shares being issued upon conversion of the dilutive securities, with certain of these loan facilities appearing close to maturity. RockRose believes that should all of IOG’s dilutive securities exercisable at the 20p offer price (including those relating to LO&G) be converted at the publicly disclosed strike prices, IOG’s shares in issue could increase from 126.9 million shares to up to 324.2 million shares, a potential increase of 155.5%(1).  Accordingly, RockRose will seek to understand the implications of the conversion of these dilutive securities, which may have conditions that are under the control of London Capital and Finance plc (in administration), the secured lender to LO&G, given that the full terms (and effect of them) do not appear to be clear from announcements and disclosure made by IOG.

RockRose believes that all IOG shareholders should be given the opportunity to consider the merits of the potential offer which would be at a more than 50 per cent. premium and made fully in cash by a credible bidder. Furthermore, it is, in the view of RockRose, the fiduciary duty of the IOG Board to engage with RockRose immediately including providing it with access to the convertible loan documents and other documents representing other dilutive securities while the Board considers, in conjunction with its advisers, the merits of the potential offer.

RockRose shares are currently suspended on account of the ongoing transaction with Marathon Oil U.K. LLC (“Marathon”), announced on 25 February 2019. The Possible Offer is separate to the Marathon transaction and RockRose is in a position to proceed with both transactions on a standalone basis or simultaneously.

It is important to note that this is an announcement of a possible offer pursuant to Rule 2.4 of the Code and accordingly there can be no certainty that any offer for IOG will be made by RockRose.

If any dividend or other distribution is announced, declared, made, paid or becomes payable by IOG on or after the date of this announcement, RockRose reserves the right to reduce the consideration payable in respect of each IOG Share by the amount of all or part of any such dividend or other distribution.

Rule 2.6(a) of the Code requires that RockRose, by no later than 5.00 p.m. on 2 April 2019 being the 28th day following the date of this announcement, either announces a firm intention to make an offer for IOG in accordance with Rule 2.7 of the Code or announces that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline will only be extended with the consent of the Panel on Takeovers and Mergers, in accordance with Rule 2.6(c) of the Code.

Investors should note the further disclosures required by the Code set out below, and in particular, that disclosures are required by persons with interests in securities representing more than 1 per cent. of IOG Shares.

RockRose will make further announcements in due course as and if it may be appropriate.  

Notes:

(1)    Based on publicly available disclosure, these convertibles have accrued interest at 9% + LIBOR since drawdown, the value of which has been added on to the principal value of the convertible. This in turn could further increase the number of shares issued at conversion.