Pacific Rubiales Shares Ride High on Takeover Offer From Alfa and Harbour Energy

NEW YORK (The Deal) -- Pacific Rubiales Energy (PEGFF) (PRE:Toronto) Thursday were holding on to Wednesday's 28% gain, which came after the operator of Colombia's largest oil field said it received a C$2.04 billion ($1.7 billion) offer from Mexican conglomerate Alfa SAB de CV (ALFFF) and private equity-backed Harbour Energy.

The bidders pitched their offer at C$6.50 per share, a 35% premium to Toronto-listed Pacific Rubiales' Tuesday closing price of C$4.83. The bid values the target at $6.4 billion including net debt of about $4.7 billion.

"Alfa and Harbour Energy have agreed with the company [Pacific Rubiales] to work toward completion of definitive documentation expeditiously," Pacific Rubiales said. "The contemplated transaction would be subject to a number of conditions and there can be no assurance that any transaction will be completed."

Pacific Rubiales' Toronto-listed shares were up C$0.09, or 1.4%, at C$6.24 on Thursday morning after closing Wednesday at C$6.16, up C$1.33, or 28%.

U.S.-listed shares in Pacific Rubiales were down 1 cent, or 0.2%, at $5.13 on Thursday morning. The stock had closed Wednesday's session up $1.11, or 28%, at $5.14.

Under the terms of the planned offer, Alfa, which already owns 18.95% of Pacific Rubiales, will seek to increase its stake to 50%, leaving Harbour Energy to buy the remaining 50%. Harbour is jointly owned by Asian commodities trader Noble Group and private equity firm EIG Global Energy Partners.

The bid offers a welcome respite for Pacific Rubiales' investors, who had seen the value of their shares slump more than 75% in the six months to the end of April, when rumors of a bid emerged. Pacific Rubiales has suffered from the recent slump in oil prices, though its high levels of debt, much of which was accrued in recent years as it snapped up smaller oil companies, have exacerbated its woes.

Pacific Rubiales in March announced that it had renegotiated debt covenants on its revolving facility and some bank debts, easing immediate fears that it could breach the rules of its loans. Credit rating agency Fitch Ratings at the start of March downgraded Pacific Rubiales' long-term rating to BB from BB+, noting that total debt would likely rise to more than 4 times EBITDA in 2015 and 2016 as output fell due to lower capital expenditure.

"Alfa and Harbour Energy's acquisition of Pacific Rubiales would be positive for the company's credit quality if the company receives a capital injection aimed at improving its capital structure," Fitch analysts said on Wednesday. "The new shareholder group could also help Pacific Rubiales lower its business risk by facilitating its entrance into Mexico."

A deal would cement Alfa's ambition to add oil production to its sprawling business empire, which ranges from petrochemicals and communications in Mexico to cold-cuts in North America. It would also serve to double down on a currently losing bet on Pacific Rubiales just as oil prices show signs of recovering. Alfa acquired its initial stake in Pacific Rubiales over the course of 2014 at between C$18 and C$21 per share.

Alfa is likely to finance its share of the acquisition with cash from the proceeds of an IPO of its aluminum car parts subsidiary, Tenedora Nemak SA de CV, which is expected to come to market by the end of June, according to Fitch.

Alfa's dollar-denominated OTC stock closed Wednesday at $2.18, up 4 cents, or almost 2%.

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