National Post

Will $6.50 a share rule day?

- Barry Critchley Off the Record Financial Post bcritchley@nationalpo­st.com

Alfa SAB and Harbour Energy Ltd.’s planned takeover of Pacific Rubiales Energy Corp. is not looking good if institutio­nal shareholde­rs pay heed to proxy advisory firms’ recommenda­tions.

On Friday, Glass Lewis became the second advisory firm to recommend against the $6.50-a-share takeover. Earlier Institutio­nal Shareholde­r Services weighed in, saying shareholde­rs should not support the offer that’s set to be voted on at a special meeting on July 7.

To get across the line, the transactio­n that’s received the necessary board approvals and fairness opinions requires the support of twothirds of the shareholde­rs who vote. Mexico-based Alfa has a 19.15 per cent stake in TSX-listed Pacific Rubiales.

The proxy advisers’ assessment is good news for O’Hara Administra­tion Co., S.A — a group of investors that owns 19.82 per cent of Pacific Rubiales, enough to make it the company’s largest shareholde­r.

In a statement O’Hara said Glass Lewis stated that the Pacific Rubiales board “conducted a limited review of strategic and transactio­n alternativ­es which, in the context of this contested solicitati­on, establishe­s a firm foundation from which the Dissident has compelling­ly raised substantia­l doubt as to whether the proposed arrangemen­t is likely to represent the best available alternativ­e for unaffiliat­ed shareholde­rs at this time.”

Strong words, but there was more to come. Glass Lewis said it saw “merit in the Dissident’s arguments that the proposed acquisitio­n appears to undervalue Pacific Rubiales,” is opportunis­tic in its timing, inconsiste­nt with recent statements from management and treats unaffiliat­ed shareholde­rs inequitabl­y.

As with ISS, Glass Lewis pointed out its displeasur­e at the situation where some of the executives at Pacific Rubiales will be offered the chance to acquire equity in the Latin American oil and gas company once it is acquired.

“The motivation behind such a move — that the value of the units will increase post-transactio­n — runs counter to the notion that such a price represents an attractive value for unaffiliat­ed shareholde­rs to cash out at,” said the Glass Lewis report.

The report also noted that because this option to is not offered to all shareholde­rs, “we believe this serves as further evidence of inequitabl­e treatment of the interests of unaffiliat­ed shareholde­rs in the proposed transactio­n.”

Both Pacific Rubiales and the buying group have responded to the ISS report. The former said the premium price to be received by shareholde­rs “is the culminatio­n of a thorough, thoughtful and complete process focused on maximizing value for all shareholde­rs that started in early 2014.”

It added that other bidders had a chance to come with a higher offer in the period between May 5, when the Alfa-Harbour offer was confirmed, and May 21, when it was signed. But none did.

The buyers say their $6.50 a share offer is “full, fair and final.”

So which way will it go? Getting two-thirds support is a tough ask when the largest shareholde­r is opposed. Even so, shareholde­rs may opt for the certainty of $6.50 a share given that the stock may return to the $3-$4 level it was before the offer.

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