ONGC in a spot on Imperial deal

Oil and Natural Gas Corporation’s (ONGC) move to wriggle out of the Imperial Energy deal may not succeed. The PSU major is now desperately banking on the slim chance of 90 per cent of the investors not tendering their shares in the open offer within the stipulated 21 days.

The open offer starts tomorrow. According to sources close to the development, ONGC Videsh Ltd, the overseas arm of ONGC, had approached the UK Takeover Commission to extend the date for the open offer. The request was rejected by the panel, sources said.

Since all the required approval was given on November 11, it is mandatory upon the acquirer to make the open offer within 28 days. Under the prevailing norms, the open offer needs to be open for a minimum 21 days.

However, the proposed bid to acquire Imperial Energy at 1250 pence per share was subject to one condition: that ONGC would accept the offer only if 90 per cent of the investors tender their shares.

“ Since it is Christmas time, and most of the offices are going to be closed, there is a slim chance that 90 per cent of the offers would not come within the stipulated 21 day-period. In that case, the company can walk out of the deal,” sources said.

However, this is highly unlikely. At a time when the global equity markets are in the doldrums and crude oil prices have crashed, investors are bound to participate in the open offer. Imperial Energy shares are trading at 1085 pence -- 15 per cent below the open offer price of 1250 pence.

The drastic fall in the crude price has made the proposed acquisition unviable. ONGC Videsh’s 1,250 pence-a-share bid gave the company a 10 per cent internal rate of return (IRR), taking crude at $121 a barrel. But with rupee depreciating by 20 per cent against the dollar and crude falling to around $40 a barrel, the IRR has come down to around 3 per cent.

The fact that OVL is not buying from the open market is an indicator that the Indian company is trying to get out of the deal.

A leading investment banker tracking the petroleum sector said the company would have saved a significant amount if it had acquired shares from the open market.