Repsol takeover talk boosts Talisman shares
It’s getting sufficiently cheap enough that they’re willing to look past those other issues such as the North Sea.
A delegation from Spanish energy giant Repsol S. A., the company long rumoured to be in pursuit of Talisman Energy Inc., was in Calgary on Friday for talks with their acquisition target, sources have confirmed.
The Financial Times reported that Repsol and Talisman hope to agree on a deal before Christmas, though analysts are divided over whether a transaction between the two companies is imminent and what that would look like. A source close to the company confirmed Friday that Repsol executives were in Calgary for talks.
Repsol reached a $ 5 billion US settlement with the Argentinian government in February over the nationalization of its interests there and is widely considered a motivated buyer.
That $ 5 billion is just shy of Talisman’s market capitalization, which was $ 5.55 billion late in the trading day on Friday. Talisman’s shares in Toronto jumped 18 per cent on the day to $ 5.04 amid reports of a Repsol visit.
However, Talisman has lost half of its enterprise value ( which includes debt) since August as a result of plummeting oil prices, Raymond James analyst Chris Cox said. “It’s dropped pretty considerably, it’s almost at half.”
He said that he was skeptical a deal was imminent, but added that Talisman is likely a motivated seller.
FirstEnergy Capital Corp. analyst Michael Dunn said in a research note that “the fall in oil prices has likely increased Talisman’s motivation to monetize assets.”
Dunn added that, if the West Texas Intermediate oil price was $ 90 US per barrel, he expected Talisman “to outspend its cash flow and dividend by a fairly wide margin.”
The WTI price fell again on Friday, by 3.6 per cent to $ 57.81 US per barrel, and has dropped more than 40 per cent since June.
Reached i n Madrid, Repsol spokespeople offered “no comment” on reports their executives had flown to Canada. Similarly, Talisman spokesperson Brent Anderson repeated that the company had been approached “by a number of parties, including Repsol,” but said “there’s no assurance any transaction will be agreed.”
Talisman’s North Sea assets, which are cash- flow negative at current oil prices, are widely considered an impediment to either an outright buyout or an asset purchase by Repsol.
“It’s getting sufficiently cheap enough that they’re willing to look past those other issues such as the North Sea,” Cox said. He said the North Sea assets were likely an impediment “a couple bucks per share ago, or a couple billion dollars of enterprise value ago.”