Pacific Rubiales Posts Record Drop as Alfa Takeover Bid Quashed

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Pacific Rubiales Energy Corp. shares and bonds plunged the most on record after the Colombian oil producer’s would-be suitors withdrew their takeover offer.

The stock dropped 47 percent to C$2.78 at 3:38 p.m. in Toronto as its benchmark bonds due in four years sank 13 percent. Analysts cut their target price for the shares from the C$6.50 bid price to as low as C$0.25 on concern the company will struggle to survive without a new buyer.

Mexico’s Alfa SAB and partner Harbour Energy Ltd. dropped plans to acquire Pacific Rubiales after its largest shareholder spurned the offer once valued at as much as $1.7 billion. Without the takeover, analysts are focusing on whether Pacific will be able to shore up its finances given what the company itself has called “notable risks” that include the slump in oil prices, the loss of its main field next year and challenges at other Colombian projects, according to a June 18 statement.

“Pacific Rubiales has, in recent weeks, made it abundantly clear that, as an independent company, it will necessarily have to focus on cost-cutting, asset sales and debt reduction,” David Dudlyke, an analyst at Dundee Securities Ltd., said in a note in which he cut his target price to C$3. The deal’s breakdown also raises concern that Alfa, which holds just under a 19 percent stake, may no longer want to partner with Pacific to drill in Mexico, Dudlyke wrote.

Alfa shares rose 3.3 percent to 31.10 pesos in Mexico City.

Pacific said in Wednesday’s statement that it would continue with its plans to reduce debt and operating costs and to divest non-core assets. It said it would also continue to pursue opportunities in Mexico with Alfa as a partner.

Debt Burden

Since May, Pacific Rubiales and the companies seeking to buy it have tried to convince shareholders that a takeover was preferable to the struggle it would face alone. Co-chairman Serafino Iacono had said that without a takeover, “this company will deal mostly with keeping its production profile going and producing oil to generate cash to pay, or repay, for the next three to five years its debt. It will have very little room for growth,” according to a call three weeks ago.

The company’s $1.3 billion of 2019 bonds sank a record 11.1 cents on the dollar to 71 cents, sending yields soaring 4.83 percentage point to 16.48 percent. The $1 billion of notes due 2023 fell 9.36 cents to 63.23 cents, and $1.1 billion of securities due 2025 bonds fell 9.46 cents to 63.39 cents.

Pacific’s biggest investor, O’Hara Administration Co. had said a fair price for Pacific Rubiales would be more than C$9 a share. Otherwise, it wants to retain its stake on the assumption that the company will be worth more in three years after board and management changes, spokesman Orlando Alvarado said Sunday.

Today’s drop brings the stock’s slump to 85 percent over the past year. The shares had traded as high as C$23.80 during 2014 before the collapse in oil prices.

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