Sound Oil has announced their intention to launch a public offer for 100% of Antrim Energy Inc. This is a particularly interesting move, as without actually launching an offer, Sound has effectively ensured that Antrim shareholders get an opportunity to look at what might be a very interesting deal. There has been much talk about consolidation in the E&P sector and with the Ophir/Salamander deal going on, Sound has proved that they too can be part of the shake up of the sector.
The deal itself offers 0.3198 Sound shares for each Antrim share valuing them at 3.44p or £6.35m. The rationale for Sound shareholders is that for around £6m worth of their paper they get a high potential exploration asset in Ireland plus over £10m in cash. It also diversifies the Badile outcome and smooths out the exploration risk over the next couple of years. This seems all rather too good to be true and I can envisage a defence that suggests that Antrim are worth much more, however, recent management at the company has been indifferent at best and there is usually a good reason why companies trade at a discount to cash. With a substantial office in Calgary managing a European asset not making much sense, Antrim shareholders may look at Sound’s paper and high quality management with some interest. The combined company would be geographically well balanced in Europe, have a strong grip on costs, good management and a highly supportive shareholder in Continental.
By effectively going hostile, Sound has shown that it can and will be part of the sector rationalisation and is prepared to participate in what it believes is consolidation of the weaker players. Antrim holders may look at Sound paper and see it as a more realistic option which diversifies their portfolio and gives them more discipline and plenty of upside with assets such as Badile etc. This may be a smart move by Sound and by launching an intended offer, they give Antrim’s management the chance to get around the table and do a deal on an agreed basis. I will add more later or when more information becomes available.