Rubiales (PRE.to) to buy Alange-cum-PetroMagdalena (PMD.to) — time to cash out

(After-hours update at bottom regarding that headline.)

When life gives you lemonade, dilute and drink. Or as the statement says:

Shareholders of PetroMagdalena will receive C$1.60 in cash for each outstanding Share, representing a premium of approximately 38% on the 20 day volume weighted average price of PetroMagdalena’s common shares on the TSX-V as of June 4, 2012. In addition, holders of all of the outstanding PetroMagdalena warrants (TSX-V: PMD.WT) will receive C$0.25 in cash for each unexercised Warrant held at closing. The Warrants had a closing trading price on the TSX-V of C$0.215 on June 4, 2012.

Pacific Rubiales chairmen Serafino Iacono and Miguel de la Campa owned a combined 644,857 shares of PetroMagdalena, according to PetroMagdalena’s 2011 Annual Information Form. PRE.to agreed to buy Petromagdalena for $1.60 a share, or 44 cents a share above average market price, in cash. If the deal goes through as currently structured, it will put $2.35 million of Pacific Rubiales money directly into the pockets of Iacono and de la Campa.

If these guys just wanted to take money from Rubiales, they wouldn’t be allowed to. After all, they may be chairmen of the board, but there are other shareholders to think about. But if Rubiales just happens to give a sweetheart buyout to a crappy company largely owned by these two guys? Well no problem, right?

But don’t worry, there’s no conflict of interest here. From the statement:

Both Miguel de la Campa and Serafino Iacono, directors of the Company who are also directors of Pacific Rubiales, did not participate in any discussions or negotiations regarding the approval of the proposed acquisition and abstained from the Boards’ deliberations….

Anyway, this deal just unlocks PetroMagdalena’s value. It’s really a valuable asset, and other companies may swoop in to make a superior bid. Oh wait:

…In the event of a superior proposal, Pacific Rubiales will have a five business day right to match the superior proposal. If the Arrangement is not completed as a result of a superior proposal or for other certain specified circumstances, a termination fee equal to C$10,000,000 will be paid by PetroMagdalena to Pacific Rubiales. If the Arrangement is not completed, due to certain circumstances, including a failure to receive necessary regulatory approvals, a reverse termination fee of C$10,000,000 will be paid to PetroMagdalena by Pacific Rubiales…

But the story is actually more complicated, because the chairmen aren’t actually getting rich on this deal. For example, back in April and May of 2011, Iacono paid an average 23.9 cents a share to soak up 1.9 million shares of Alange Energy, which was PetroMagdalena’s name in olden times. (That stock went through a 7 for 1 consolidation when the company became PetroMagdalena.) Rubiales is bailing out Iacono and de la Campa at the equivalent of 22.8 cents a share of old stocks, a small loss. Following the money then, one group that Rubiales is ultimately bailing out would be the Alange holders who unloaded their stock onto Iacono and de la Campa. I don’t know if any of those people signed onto the shareholder class action against PetroMagdalena, but I kinda doubt it.

In any case, they are a tiny minority of the stockholders. A much bigger group is the people who bought Alange share-and-warrant packages for 30 cents apiece in February 2011. They are coming out way ahead.

So who is hurt by all this? Maybe PRE.to retail shareholders, but if they are annoyed, they aren’t showing it in the market. Stock is up 64 cents, or 2.4%. So hey! Win-win-win.

UPDATE: I just realised the headline sounds judgmental. I want to be clear: I am saying that it looks like PRE.to’s board members are cashing out. I am NOT telling you to cash out. I have no idea of PRE.to is a good investment at this moment. And if you take investment advice from me, you deserve any financial losses you sustain. I take no responsibility. I have a hard enough time taking responsibility for my own, many, loss-making trades.

17 thoughts on “Rubiales (PRE.to) to buy Alange-cum-PetroMagdalena (PMD.to) — time to cash out

  1. Diego

    Boy…is this an incestuous relationship or what? You probably saw this one coming Setty right? It was just a matter of time. Hope all is well with you
    diego

    1. sapitosetty Post author

      Well I’m not going to say I saw it coming…but I did have half that post written and stored on the server just in case. Hence the months-old numbers for shares held. :)

  2. westslope

    This takeover has been on the active rumour mill in Colombia for at least a month now. Given the current state of the markets, I’d say this is a sweet deal for the Pacific Rubiales co-chairs.

    Does it makes sense for Pacific Rubiales shareholders? Can Pacific Rubiales exploit Petromagdalena’s assets better than current management? Perhaps. Petromagdalena is natural gas rich, and Pacific Rubiales is planning an offshore LNG export terminal that will require volume.

    On the other hand, this acquisition comes on the heels of several purchases and farm-ins (CGX Energy offshore Guyana, BPZ offshore Peru, Interoil–Papa New Guinea). Overall, and disregarding some labour issues, Pacific Rubiales has demonstrated excellent project management skills.

    Now is a good time to buy. Nevertheless, at some point, enough is enough.

  3. serafino iacono

    Dear stupid before you publish rubbish again get your facts straight my average cost for what I hold is 192 per shares so I don’t know were you get your facts as allways you are superficial in your reserch and inacurate in you publishings but then you are consistent , keep up de mediocre work , regards serafino iacono

    1. sapitosetty Post author

      Mr. Iacono – Thanks for joining the conversation. (And for signing your name.) You’ll note I didn’t say anything about your average cost per share, but I did say it looks like you are taking a “small loss” on a bunch of your shares. As I said in the post, the buyout offer by PRE.to appears to bail out the people who bought into the PMD financing at 30c for a share and a warrant. While it saves you from further losses, it doesn’t make you rich.

      I also think I was pretty clear in the post that nobody seems to mind this deal — the market didn’t complain, nobody criticized it publicly, and so there it is.

      I will correct incorrect facts in anything I write. Unlike some people, I relish criticism, recognizing that it helps my story get better, even if at times it’s embarrassing to have gotten something wrong. Tell me more about these inaccuracies you refer to.

      As long as you’re here, I have some questions.
      1. If the goal here is to unlock PetroMagdalena’s value for all PMD shareholders, why put that C$10 million termination fee into the agreement? Do you think the PMD.v board would have voted in favour of such a termination fee if they didn’t already have a close relationship with PRE.to?
      2. Did you buy shares from any ALE.v holders in return for their agreeing not to join the shareholder class action?
      3. What exactly is your relationship to GMP Securities?

      It seems you are annoyed with me, but I’m not going to return the insults. I have taken a consistently skeptical line toward your company, as I do toward all companies, governments, you name it. From what I can see, skepticism has been in short supply when it comes to Pacific Rubiales. I have nothing against your company. If anything, you should be thankful that the only media outlet that pointed out your shareholding in PMD is a pissant little blog — I’m not exactly Ida Tarbell.

      (Also: I hear you are working to save the cute fuzzy monkey. That is very cool.)

  4. westslope

    Who is Ida Tarbell?

    re: point 1. Termination fees are standard. Its absence would have raised eyebrows.

    re: point 2. Unlikely. Besides, anybody directly involved in the class action suit could not comment at this point. On the bright side, Pacific Rubiales can easily afford to settle with class action claimants.

    re: cute fuzzy monkey. Tell us more! If was I running Pacific Rubiales, I would turn that monkey into a company mascot. Upstream oil company impacts are minimal compared to farming and ranching.

    P.S. How do you know that that is indeed serafino iacono and not some financial guy from downtown Bogota who got out of bed grumpy and decided to spoof serafino iacono? [Note the lower case………..]

    P.P.S. In the same way that Canadian oil companies are contributing to nation state building in Colombia, you setty are contributing to integrated multi-national oil company ‘building’. You should feel proud. ;-)

    1. sapitosetty Post author

      Westslope: They ought to pay you! As far as the termination fees, the one in this deal is quite large. On the Alange case, I’m just asking because it’s something I have heard of, not because I have any info about this case. Mostly involving big institutional holders.

      I’ll write up the monkey soon… Seriously interesting story.

      I have no idea if that commentor is Mr. Iacono. But my father has a saying: “Treat people as if they are real. Perhaps they are.”

  5. Reinel Restrepo

    Donde estoy ? Qui bono Serafino ? Es tiempo buscar a Dios. Angels deliver 24/7.

  6. Rafael Tobon

    I’m sleeping pretty well here in Segovia, how about you Serafino ?
    Mediocrity wraps itself in a Canadian flag.
    In sol,

  7. sapitosetty Post author

    For those not versed in the Iacono corporate world, Restrepo and Tobon are the names of people who opposed different mining projects by Iacono’s companies and also ended up being killed. There is no clear link between Iacono or his companies and these deaths, and the companies have denied any involvement. A lot of people get killed in Colombia and a lot of people oppose mining projects, so there’s always a chance of an overlap between those two groups without it being sign of a trend. But the suspicions are certainly out there, as those comments indicate.

  8. Rob gonzalez

    Petromagdalena emitió 2,12mm de acciones a 1,29 y las entregó a Pacific Rubiales como pago de acreencia a PRE. Fecha del deal: 29 de Mayo.

  9. Peter Volk

    My name is Peter Volk and I am General Counsel for Pacific Rubiales (PRE) and, in the spirit of full disclosure, also General Counsel for PetroMagdalena (PMD). It is not corporate policy for either company to reply to web posts but I feel it is important that the record be set straight. I can categorically deny and reject the notion that the email referenced above and quoted in your blog on the proposed acquisition of PMD by PRE was sent by Mr. Iacono; while he may disagree with many of your posts, as you know, he has never responded before and there is little reason or incentive for him o respond to that particular one, despite its many inaccuracies (only one of which I will point out, because it is rather critical – PMD subscribers at $0.30 also saw their securrities consolidated on a 7 for 1 basis, so their actual current cost is $2.10). Mr. Iacono, PRE and the PMD board all believe that the transaction delivers value in an increasingly difficult market, and have the confidence in the value proposition to allow shareholders to decide if this is true. PMD will be issuing a shareholder circular shortly that makes this case, and therefore there is no reason or benefit to responding to blogs (other than, I guess, this response).

    I am not an IT person but I do appreciate your pointing out what could possibly be a security breach, which we will be investigating. In the future, please feel free to call me first to verify the provenance of any such emails.

    Finally, my thanks to all of you for a very healthy discussion on the proposed transaction and its potential benefits.

    Yours truly,

    Peter Volk
    General Counsel, PRE and PMD

    1. Paula

      Mr. Peter Volk,

      With the utmost respect, there is nothing healthy about this conversation.
      I am not a three-cornered amalgamation person but I do appreciate your craft and more importantly indirectly pointing out the complexity of this structure.

      In the spirit of full disclosure ….material contracts or Blog title Alange General Counselor would have provided greater transparentcy.

      Mr. Everyone else,

      This is not a Mr. ABC is the problem this is a Ignorance about the Canadian securities market problem.
      This deal does not just unlock PetroMagdalena’s value but all of their Continuous Disclosure Obligations which can be found on page 46.
      http://www.petromagdalena.com/Theme/PetroMagdalena/files/doc_financials/PMD%20-%20120326%20-%20PMD%20AIF%202011%20-%20FINAL_v001_l5t2f4.pdf
      MATERIAL CONTRACTS
      The Company did not enter into any material contracts during the most recently completed financial year, and has not entered into any material contract since January 1, 2012 and before the most recently completed financial year that is still in effect, other than material contracts entered into in the ordinary course of business that are not required to be filed under National Instrument 51-102 – Continuous Disclosure Obligations and the contracts set forth below:
      1. Arrangement Agreement between the Company and Prospero Hydrocarbons Inc. dated June 27, 2009;
      2. Letter of Intent between Alange, Corp. and Prospero Hydrocarbons Inc. dated June 29, 2009;
      3. Amended Letter of Intent between Alange, Corp. and Prospero Hydrocarbons Inc. dated July 15, 2009;
      4. Second Amending Agreement dated September 9, 2009 between the Company, 1434858 Alberta Ltd. and Prospero Hydrocarbons Inc.;
      5. Transaction Agreement between Delavaco and the Company dated September 30, 2009; and
      6. Amalgamation Agreement between the Company, Alange Ontario Corp. and Delavaco dated October 22, 2009.
      7. Warrant Indenture between the Company and Equity Financial Trust Company dated February 22, 2011 in connection with the issuance of Warrants under the February 2011 Offering.
      8. First Supplemental Indenture to Warrant Indenture dated as of May 5, 2011.
      9. Note Indenture between the Company and Equity Financial Trust Company dated May 5, 2011 in respect of the issuance of the Senior Secured Notes under the May 2011 Offering.
      10. Shareholder Rights Plan Agreement between the Company and Equity Financial Trust Company (as Rights Agent) dated as of May 13, 2011.

  10. Mike

    Hi Sapitosetty, there is any way to know if Iacono, De la campa and Volg, did receive any compensation for the sale? They made a lot selling Coalcorp for instance.

    1. sapitosetty Post author

      Their shareholdings are all listed at SEDI (no relation to me). You need to search by name, not by company. They had a lot of PetroMagdalena shares, but it’s hard to say they exactly made money. If they made anything it wasn’t much, given how much Alange stock dropped last year. The real winner in this whole thing has been the people who got into the last PetroMagdalena placement. And the bank that did that placement happens to be close to Serafino Iacono. But whatever. Like I said in the post, this is well and truly not my issue. If shareholders are happy, all good. I’m just glad to be able to move on to the next story. And they are legion.

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