Pacific Rubiales Dissidents See Hypocrisy in CEO’s Payout Plan

The investor group pushing to block Alfa SAB’s takeover of Colombia’s Pacific Rubiales Energy Corp. says the structure of a $15 million proposed payout to the oil producer’s chief executive exposes the hypocrisy of the deal.

While the board agreed to sell Pacific Rubiales at C$6.50 a share, CEO and Director Ronald Pantin is going to use his cash from the deal to buy equity units in the company at the same price. So, as management urges investors to sell at a level 71 percent below where the stock was a year ago, the CEO, chief financial officer and other top managers are buying in at that same level.

That’s a problem because regular shareholders, who vote whether to approve the transaction on July 7, don’t have the same option to hang on to equity if the sale goes through, according to O’Hara Administration Co. and its affiliates, which control almost 20 percent of Pacific Rubiales’s shares. Along with Pantin, CFO Carlos Perez and about a dozen other executives plan to keep an economic stake in Pacific Rubiales after the takeover as it starts operations in Mexico.

“Instead of allowing shareholders to participate in the Mexico expansion, they are forcing you to sell,” Orlando Alvarado, a spokesman for the O’Hara group, said by telephone from Madrid. “How is that fair?”

Pacific Rubiales General Counsel Peter Volk said by e-mail that retaining key executives was a condition of the takeover.

“In order to secure a premium offer for shareholders, key members of management, including Mr. Pantin, agreed to roll their long-held, contractual entitlements into the new structure, putting these at risk for a substantial period of time,” Volk said. “Without doing so, there would have been no offer.”

Oil Prices

Management has the responsibility to operate in the best interests of all shareholders, and unless the current deal is approved, the company “will continue to struggle in this low oil price environment,” Volk said.

The payouts triggered by the sale were part of change-of-control clauses in their contracts and payment for deferred shares.

An Alfa spokesman declined to comment. Alfa’s partner in the deal, Harbour Energy Ltd., didn’t reply to an e-mail message seeking comment.

Pacific Rubiales has said an independent committee of its board obtained an appraisal for the shares at $C3.13 to $C7. A year ago, they were trading at C$22.05.

The shares rose 0.5 percent Tuesday to C$5.56 as of 2:01 p.m. in Toronto.

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