Pharos Energy (LSE:PHAR) shares fell around 5% on Monday after Serica Energy (LSE:SQZ) confirmed that it would not increase its takeover proposal for the oil and gas company, potentially strengthening the position of competing bidder Ratio Petroleum Energy.
Serica said it does not intend to increase or otherwise improve the financial terms of its £145.7 million ($196.59 million) proposal for Pharos, which was announced on July 26, except under certain specified circumstances, including the emergence of another offer. The decision follows a higher proposal submitted by Israel’s Ratio Petroleum Energy.
Pharos’ board switched its support to Ratio’s improved proposal on Friday, which values the company’s shares at 32.8 pence each. This is marginally above the 32.67 pence per share offered by Serica and prompted the board to withdraw its previous recommendation in favour of the Serica transaction.
Serica said its decision to maintain its existing terms demonstrates a “highly disciplined approach to M&A.” The North Sea-focused producer also indicated that it continues to assess a pipeline of alternative opportunities across the U.K. North Sea and other regions as part of its broader growth strategy.
Ratio’s revised proposal would give Pharos shareholders 28.8 pence per share in cash alongside a 4 pence special dividend. Together, the payments represent a 29.2% premium to Pharos’ closing share price of 25.4 pence on June 23, the final trading session before Ratio announced its initial approach.
The revised terms have intensified the contest for Pharos, which has producing oil and gas operations in Vietnam and Egypt. Ratio has argued that its experience securing regulatory approvals across several jurisdictions provides greater certainty that its proposed transaction can be completed successfully compared with Serica’s offer.
Competition for Pharos comes against a broader backdrop of consolidation within the oil and gas industry, as producers pursue acquisitions to diversify their asset portfolios. Deal activity has also been supported by elevated crude prices since the Iran war began in late February.
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