Financial Post: Talisman loan a step closer to Arakis takeover
September 1. By CLAUDIA CATTANEO
Calgary Bureau Chief, The Financial Post
Talisman Energy Inc said yesterday it has advanced US$21.8 million in bridge financing to Arakis Energy Corp. as part of a plan to take over the company by Oct.7.
"This is obviously in the direction of 'We are progressing'," said Talisman president Jim Buckee."We see no show-stoppers." But news of the loan shaved a further $3.90 from Talisman's stock, which closed yesterday at $23.10. Arakis shares gained 1/32, closing at US$11/16.
Talisman announced a plan Aug. 16 to purchase international oil and gas firm Arakis for $295 million in stock. Since the deal's announcement, the shares have lost about $10. Arakis's only asset is a stake in a giant oil field in war-torn Sudan, which it can't afford to develop. As part of the deal, Talisman agreed to offer bridge financing to Arakis of US$54 million so it can cover its share of project costs until the deal is closed. Shortly after the deal's announcement, the U.S. bombed sites in Sudan suspected of harboring terrorists.
Buckee said yesterday the financing doesn't mean the deal is irreversible. If Talisman backs out, it would try to get the money back as an unsecured creditor. Arakis issued a secured debenture to Talisman for the advance, convertible into Arakis common shares at US$1 a share, to a maximum of 17.8 million shares, or just under 20% of Arakis shares outstanding.
Despite investors' negative reaction, analysts have been positive on the acquisition, saying its near-term potential is a good tradeoff for political risk. The oil project is scheduled to start producing 150,000 barrels a day in early 2000, after the completion of a pipeline to Port Sudan.
"I presume [investors] don't doubt my technical judgment, so they must be worried about the politics, so I am trying to address the politics," Buckee said. "This is positive engagement rather than sanctions. I don't think it's been proven that sanctions help the people of a country much at all."
The project has a great chance of success because Talisman has two strong partners in the Chinese and Malaysian state oil companies. "This project is going to be done, with or without us. And we think that Sudan and the world will be better served by having Talisman part of it, because we bring western involvement, and that can only be good."
Buckee said Talisman could still back out of the agreement if there were dramatic changes. Talks with Sudanese and Canadian officials have provided more comfort to go ahead. Asked whether the project effectively acts as a poison pill to keep the company from getting taken over by U.S. firms, Buckee said it does have that effect. Under a U.S. trade ban, American companies are severely restricted from doing business in Sudan.
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