Ratio Raises Pharos Energy Offer to Top Serica’s Rival Bid

Pharos Energy (LON: PHAR), the AIM-listed oil and gas explorer operating in Vietnam and Egypt, has received an increased takeover offer from Ratio Petroleum Energy LP worth 32.8183p a share, topping a rival bid from Serica Energy (LON: SQZ) and prompting Pharos’ board to switch its recommendation back to Ratio.

Pharos shares closed at 31.5p on Thursday, within a 52-week range of 17.5876p to 33.2p, and had not yet traded on the news, which broke ahead of Friday’s market open.

Ratio’s original all-cash deal, agreed on 24 June, was worth up to 28.0p a share and had been recommended by the Pharos board. Serica intervened on 26 July with a competing offer worth an equivalent 32.6683p; Pharos directors subsequently withdrew their backing for Ratio’s original terms. Ratio has now responded with an increased offer of 28.8183p in cash plus a 4.0p special dividend, totalling 32.8183p, funded by an enlarged irrevocable letter of credit from Israel Discount Bank Ltd dated 6 August.

The increased offer values Pharos at approximately £146.4 million — a 29.2% premium to the 25.4p closing price on 23 June, the day before the original deal was announced, and a 0.5% premium over Serica’s terms, according to the companies’ own calculation. The Pharos board has unanimously re-recommended Ratio’s new offer and secured irrevocable undertakings covering 41.76% of shares, including 0.57% from its own directors.

Rothschild & Co, acting as Rule 3 adviser to Pharos, considers the terms of the increased offer fair and reasonable.

A 15%-improvement “topping” mechanism keeps the contest alive: unless a third party, including Serica, tables a firm offer beating Ratio’s terms by that margin before 11 August, and Ratio fails to match it within 10 business days, undertakings covering 21.63% of shares remain binding regardless of any higher rival bid. The Pharos board intends to adjourn the Court Meeting and General Meeting, previously set for 17 August, to a later date.