Oil Search Limited announces US$2.2 billion deal, shares rally

What: Oil Search Limited (ASX: OSH) has today announced an agreement to acquire InterOil in a US$2.2 billion deal.

The terms of the deal will see InterOil shareholders receiving 8.05 Oil Search shares plus a “contingent value right” for each InterOil share, valuing InterOil shares at roughly US$40.25 each. InterOil shareholders also have the option of receiving all cash for their shares – up to a total value of US$770 million.

The structure of the deal also allows for a cash alternative in lieu of shares and both company boards have unanimously recommended the transaction.

Also announced in conjunction with this acquisition was a separate agreement between Oil Search and Total which will see Oil Search offload certain assets to Total, subject to the closing of the InterOil deal.

So What: Oil Search has described the deal as combining two highly complementary companies and offering compelling financial and strategic upside potential for both InterOil and Oil Search shareholders.

According to the company, this potential upside includes a pathway to optimise cooperation and/or integration between the Papua LNG Project and the PNG LNG Project driving capital efficiency, superior returns and net asset value per share accretion. Oil Search’s share of the PNG LNG project will increase to 29% following the takeover.

Now What: Oil Search’s move comes in the wake of a spurned offer from Woodside Petroleum Limited (ASX: WPL) to take over Oil Search in a $12 billion all-script transaction and really represents one of the first large-scale deals to occur amongst ASX-listed energy players since the oil price crashed.

Given the current low point in the oil cycle, shareholders in other energy majors such as Woodside Petroleum will certainly be hoping that their companies take advantage of the cyclical lows to acquire attractively priced assets.

Indeed, investors have responded positively to Oil Search’s announcements today, pushing the share price up over 2.5% earlier although the rally was fizzing out, with shares up 0.6% at $6.95.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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