- Mercuria is considering a bid for the 16% of Phoenix it currently doesn't own
- The likely bid price is 7.5p, a 10% rise on the current
- This may or may not be enough to tempt a trading position
Phoenix Global (LON: PGR) shares have jumped 12% this morning in London on the back of an announcement about a potential takeover bid for the company. This can be seen as more than a little opportunistic but the big question is what can we do about it – how can we trade to profit from this?
Phoenix, as we've pointed out before, is involved in fracking the Dead Cow (OK, Vaca Muerta) formation in Argentina. This is a known area of oil and gas potential, sometimes thought to rival some of the North American basins. Given the development of fracking techniques over the past couple of decades, yes, there's value in at least trying them on the formation.
Obviously, there're also the usual exploration risks – it may or may not work properly, is the oil and gas really down there in the shale and can it be liberated etc. Then, on top of that, there's the risk inherent in investing in Argentina. The country does not have a good record of taking care of foreign property after all.
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All of those risks are already there in the Phoenix share price. Today's announcement adds another one.
The Phoenix announcement is that the majority shareholder, Mercuria Energy Group, is thinking of buying in the 16% of Phoenix that it doesn't already own. This would mean the ending of both the AIM and Buenos Aires quotations, anyone sticking with the stock would be part of a private company – not necessarily somewhere we'd like to be as a minority shareholder.
The intention is to offer 7.5 pence a share for the outstanding shares. This is a 25% premium to the price on announcement, and a 50% premium to the weighted 30 day price. Which seems fair enough. Except, of course, for that slightly bad taste left as a result of the action. For one way to think of this is that Mercuria came to market to share the development risk, now that risk is ameliorated they're going back private to not have to share the upside. Which is just one of those things really – the risks of being a minority shareholder perhaps.
Even given all of that there question is then, well, how might we trade this? Given that 84% starting point there's not going to be some other outside bid wich pushes up the price. The decision should be made by the 16% free float, but the choices are take the bid or not – there's not that bidding war likely.
The current share price is 6.70 but that's the mid-price. The actual offer is 6.95, meaning there's about a 10% gap between the buying price and the potential cash offer. That may or may not be enough to tempt a trading position. 10% is nice but there is still of course risk here. There's no certainty that an offer will be made. We also don't know the time scale – with CPI inflation at 9.1% this morning a delay of many months in receiving the cash payout would slice away at its value considerably.