Complex Rubiales takeover

Afunny thing — with some important strategic implications — occurred on the way to the $6.50-a-share takeover of Pacific Rubiales Energy. Material for that early July shareholders’ meeting will be released shortly.

One week back, O’Hara Administration Co., S.A., the company’s largest shareholder, said “it and certain other long-term shareholders … that are acting jointly or in concert with O’Hara have retained Lazard Asesores Financieros, S.A. as their financial adviser.”

The group, which has a 19.82 per cent stake, said it and its “joint actors ... believe that the proposed acquisition significantly undervalues” the company and is not in the best interest of shareholders.”

O’Hara’s group will work with Lazard, will reach out to “all stakeholders,” or will “partner up with strategic players and/or with other shareholders in order to present an alternative to enhance shareholder value.”

That’s good news: Higher offers are always better. But will the 11-member group, some of which have been large buyers of shares of Pacific Rubiales of late, follow through?

The Alfa/Harbour transaction has been agreed to by all parties — including the board and the independent committee — and is largely based on work done by three financial advisers. GMP Securities, one of the two retained by the independent committee, opined that fair market value was in the range of $3.13 to $7 a share. One reason for the official support was that the offer represented an attractive premium — of around 80 per cent — to the then trading price.

O’Hara’s choice of financial advisory firms is one strange part of the process: in choosing Lazard, it picked a global financial services firm with interests in asset management. And it just so happens that Lazard used to be a very large shareholder of Pacific Rubiales. We were unable to reach Panama-based O’Hara.

According to the management circular at March 31, New York-based Lazard Asset Management owned 43 million Pacific Rubiales’ shares — a 13.60 per cent stake — “on behalf of its investment advisory clients.” In an early May, SEDAR filing Lazard said it owned 28.732 million shares — a 9.09 per cent stake.

But in January 2014, when it issued its previous so-called alternative monthly early warning report, it owned 58.664 million shares — or 18.07 per cent interest.

Accordingly, over the past 17 months, but mostly over the past two, Lazard has sold about 30 million shares — and now has a stake of about half what it was at the peak.

By hiring Lazard and by reaching out to other shareholders, O’Hara presumably has the potential to thwart the Alfa/Harbour transaction: a 19.83 per cent block opposed to the deal makes it that much more difficult to get it over the line. If Lazard Asset Management comes to the same conclusion, the chances are even more difficult.

But what can Lazard say? The $6.50 a share offer represents a healthy premium and a level that may not be reached in the near term given the outlook for energy prices. Indeed as an indication of the uncertainty about the deal — which comes with a US$50 million break fee — the shares haven’t traded that close to the offer price. It closed Monday on the TSX at $5.59.

And presumably it can’t say too much as over the past few months one of its units has been a seller — all at prices below the $6.50 offer price.