Key points:
- Hurricane Energy shares rallied 23.64% after entering a formal sale process.
- The company recently rejected a takeover offer that did not value it correctly.
- There are doubts about whether the formal sale process will succeed.
The Hurricane Energy PLC (LON: HUR) share price rallied 23.6% after announcing that it had received an unsolicited takeover offer for its entire issued share capital valuing each share at 7.7p, representing a 13% premium to its closing price on 1 November 2022.
The energy company’s board rejected the offer since it believes that the firm is worth much more as a standalone public company. However, leading shareholder Crystal Amber Fund Limited has expressed interest in monetising its 28.9% stake in Hurricane Energy, triggering the formal sale process.
Also read: Best Oil Stocks To Buy Right Now.
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Therefore, the Hurricane Energy board had no option but to begin a formal sale process to find bidders willing to pay more for the company and its assets so that Crystal Amber could monetise its stake and cash out of business. However, most company shareholders would have to support a formal sale.
Hurricane Energy’s board also highlighted the company’s strong financial position. It has no debt and is on track to accumulate $118 million in net free cash flows by the year’s end. The company has also set aside funds for decommissioning its offshore oil well if it runs out of oil reserves.
The company said that if the formal sale process is unsuccessful, it plans to return up to $70 million to its shareholders in Q1 2023. The firm also has over $370 million of value available in tax losses as of 30 June 2022.
Therefore, there is no need for Hurricane Energy to enter into the formal sale process other than to meet the demands of its largest shareholder, Crystal Amber Fund. Hence, there is a high likelihood that the company’s shareholders will reject the takeover offers submitted by bidders during the formal sale process.
Hurricane Energy shareholders have more to gain from the company’s remaining public with an independent board and management team compared to being sold to another firm. Still, the rally in HUR shares shows that investors are excited about the prospects of a potential business sale.
Only time will tell how the formal sale process turns out. Meanwhile, I would wait for a pullback before buying HUR shares after today’s rally.
*This is not investment advice.
Hurricane Energy share price.
The Hurricane Energy share price rallied 23.64% to trade at 8.488p rising from Tuesday’s closing price of 6.865p.