Pacific Rubiales Bidders Disparage Their Target, Awkwardly

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The companies seeking to buy Pacific Rubiales Energy Corp. were put in the awkward position of disparaging the Colombian oil producer as two proxy-adviser firms recommended shareholders reject the deal.

Alfa SAB, a Mexican conglomerate, and Harbour Energy Ltd. said Thursday their joint bid of C$6.50 a share was fair given the difficulties Pacific Rubiales would face surviving as an independent company amid a drop in output. They highlighted the Colombian company’s “very high” debt levels and the expiration of a contract to operate in its biggest oil field. They said the offer was final and won’t be increased.

The tone was a stark turnaround from when Alfa announced the agreement on May 20 with a statement that cited the company’s “excellent track record.” Glass, Lewis & Co. said Thursday that investors should reject the takeover because it may undervalue Pacific Rubiales, echoing Institutional Shareholder Services Inc.’s recommendation earlier this week

“In some instances, shareholders need a little bit of a reality check,” Rafael Elias, a Latin America debt strategist at Credit Agricole, said in an e-mail. “They need to realize that if it is not Alfa, then probably it will be nobody.”

An investor group led by O’Hara Administration Co., which controls almost 20 percent of Pacific Rubiales’s shares, has said the price is too low.

Comments from management prior to the deal indicating that the company was worth more represent a signal that the deal may be bad for shareholders, Glass, Lewis said. The firm also cited a breakup fee that discourages rival bids and a lackluster effort to find additional suitors.

Mexican Oil

Pacific Rubiales fell 5.6 percent to C$5.03 in Toronto, leaving it down 77 percent in the past 12 months. The shares had surged to as high as C$6.40 in May after the board agreed to the deal.

In pursuing Pacific Rubiales, Alfa is moving closer to realizing its goal of becoming an oil company after Mexico agreed to open fields to private drillers for the first time since 1938. The Mexican manufacturer built its stake last year to almost 19 percent, short of the 20 percent that in most cases would spur a bid under Canadian law.

The Alfa-Harbour bid price is 73 percent below the stock’s 2014 high, which was set before crude began to tumble. Oil prices have dropped 44 percent in the past year.

Alfa and Harbour said investors need to consider Pacific Rubiales’s dim prospects if the deal falls through.

“Many planned drilling and development projects are not viable in the current circumstances,” they said. Given “the outlook for oil prices and the upcoming loss of 35 percent of its existing production, our view is the company will be extremely challenged in its current state to have sufficient funds to pursue these investment opportunities.”

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