Pacific Rubiales Investors Told by ISS to Reject Alfa Deal

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Pacific Rubiales Energy Corp. shareholders should vote against the proposed takeover of the company, Institutional Shareholder Services Inc. recommended.

ISS, the proxy advisory service based in Rockville, Maryland, said the C$6.50 per share offer price contradicts statements by management as recently as March that the company was worth C$9.22 per share.

The sale process “may not have been sufficiently robust to ensure the best outcome for shareholders,” ISS said in a report. “The transaction resulted from exclusive negotiations with the bidder group, without benefit of any competitive bidding.” A vote on the deal is set for July 7.

Pacific Rubiales agreed to the joint takeover bid by Alfa SAB, a Mexican conglomerate, and Harbour Energy Ltd. in May. While Pacific Rubiales has been bruised by the drop in global oil prices, executives had made comments to shareholders preceding the takeover announcement that suggested the company could weather the slump as an independent business, the report says. Actually, it would have been difficult to avoid default, according to Ian Macqueen, an analyst at Paradigm Capital.

“This has to go through,” Macqueen, who had a C$1 price target on the stock before the takeover was announced, said by telephone from Calgary. “It’s the best alternative.”

Pacific Rubiales fell 2.3 percent to C$5.41 at 2:34 p.m. in Toronto. The shares had surged to as high as C$6.40, just 10 cents below the C$6.50 offer price, on May 21 after Pacific Rubiales agreed to the deal.

O’Hara’s Objections

An investor group led by O’Hara Administration Co., which controls almost 20 percent of Pacific Rubiales’s shares, has urged shareholders to vote against the deal, saying the price is too low. According to O’Hara, executives will be able to exchange payouts due from the takeover into an economic stake in the company at a bargain price.

In its report, ISS agreed that the arrangement “puts the interests of those executives, in helping negotiate a deal where they will benefit from a lower share price, at odds with the interests of unaffiliated shareholders who benefit from a higher share price.”

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