Nelson executives face scorn over LUKOIL offer
Mon Oct 3, 2005 01:35 PM ET
(In U.S. dollars unless noted)
By Jeffrey Jones
CALGARY, Alberta, Oct 3 (Reuters) - Russia's LUKOIL (LKOH.RTS: Quote, Profile, Research) said on Monday it had snapped up most of Nelson Resources' (NLG.TO: Quote, Profile, Research) stock as part of a $2 billion offer for the oil firm, while Nelson executives faced scorn from investors worried they were being low-balled.
Nelson, a Bermuda-based company operating in Kazakhstan, surprised investors Friday by reporting it was in talks with LUKOIL about a sale after the Russian oil firm struck deals with Nelson's major shareholders at a 15 percent discount to the market price.
As Nelson executives began a conference call Monday to try to calm investors, LUKOIL issued a statement saying it had "beneficially acquired ownership" of 66.3 percent of the stock.
That raised the key question of whether the Russian company would eventually get all of the shares at the discount price, or end up as majority shareholder in place of a group of Kazakhstan-based investors that has controlled the stock.
Nelson Chief Executive Nick Zana said the company had yet to see a formal bid, but had formed a committee of independent directors and hired investment bank BMO Nesbitt Burns to study the offer and issue an opinion on its fairness by Oct. 12.
"My colleagues and I are determined to ensure that any formal offer made for this company should protect the interests of minority shareholders to the maximum extent possible," Zana said at the start of the lengthy conference call.
Three-quarters of Nelson's stock must be tendered for the takeover to be successful, he said.
A Kazakh group, including Central Asian Industrial Holdings, Energy Investments International Ltd. and Cott Holdings Inc., has controlled a total of 57 percent of the shares.
During the conference call, investors expressed anger over the offer, which equated to C$2.57 a share one day after Nelson shares closed at C$2.96 on the Toronto Stock Exchange.
The stock fell more than 3 percent on Monday to C$2.58.
LUKOIL's offer undervalues Nelson's oil reserves and production performance, Aton Capital said in a research note. The brokerage pointed out the deal is at a discount of as much as 33 percent below LUKOIL's own financial multiples.
The biggest risk for Nelson investors is that the Russian firm gets more stock and moves to delist its target's shares, forcing investors to sell at the offer price, Aton said.
Some investors pointed out the bid looked especially cheap given the interest that companies from China and India have shown in acquiring energy assets. China's CNPC agreed in August to buy PetroKazakhstan (PKZ.TO: Quote, Profile, Research) , a Canadian firm also operating solely in the former Soviet republic of Kazakhstan, for $4.2 billion.
Zana said he had been approached by several suitors in the past nine months but none offered enough for the company, which pumped nearly 30,000 barrels a day in the second quarter.
Further muddying the issue was the exercise of options and sales of the stock by Nelson directors, including Zana, in September at prices above the LUKOIL offer.
Zana, for example, exercised one million options and sold the stock at C$2.85 on Sept. 2. On Sept. 6, he exercised 50,000 options and sold the shares at C$2.80, and on Sept. 15, he exercised 925,400 options and sold at C$2.82.
He stressed he had no knowledge of an impending bid, and said LUKOIL's first approach to Nelson was Sept. 15.
"I understand that the optics look terrible. I understand that. Therefore, we have turned over all the facts to the (Toronto Stock Exchange) and ... I welcome a full investigation," he said.
($1=$1.17 Canadian)
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