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  • Panoro Energy: Results From Corporate Sales Process Expected Shortly 0 comments
    Apr 26, 2014 3:03 PM | about stocks: PESAF
    • Panoro Energy initiated a strategic review process during 2013 and the Board of Directors concluded as part of the process in last December to put the company up for sale in order to maximize short term value to shareholders

    • Key milestone of the sales process was reached in late March when Brazilian National Agency of Petroleum (ANP) approved the sale of Panoro Energy's subsidiary in Brazil Rio das contas to GeoPark Ltd.
    • After divestment of Rio das contas (Manati) Panoro is now West Africa focused company with two near term development assets in Nigeria and Gabon. Also following the completion of the sale, Panoro became debt free and is adequately funded to meet the development obligations of its assets
    • At the moment Panoro share trades at ca. 60% discount versus core NAV estimate according to Panoro's management extended corporate presentation

    Panoro Energy (PESAF or PEN) is going through interesting times. The company is currently midst of ongoing corporate sales process and shareholders of the company are waiting clarification and results within relatively short time period. In the extended company presentation material published in April 9th was outlined rough timetable for the sales process. Management expects to conclude the sales process in Q3 2014. Based on this timetable and the earlier communication of the company it is possible to make educated assessment of the sales process steps. More precisely, what has happened and what can we expect to happen in near future.

    Panoro has hired Evercore Partners International to conduct the sales process. In general corporate / asset sales process steps can be categorized into few main groups. I will evaluate Panoro's sales process through these groups and share my observations and views on past and upcoming events. The main corporate sales process steps are as follows:

    1. Preparation
    2. Sales strategy
    3. Marketing
    4. Evaluation of offers
    5. Due Diligence & closing

    1. PREPARATION - The preparation phase was finalized for the most parts already last year. Management cleaned up the asset base by selling MKB asset in Congo, entered into sales agreement to divest Rio das contas (Manati) in Brazil and decided to relinquish and impair the remaining assets (BS3) in Brazil. They also cut G&A costs quite heavily and reached conclusion about the strategy as mentioned above. To say, groomed and polished the company in order to appeal as many potential buyers as possible.

    2. SALES STRATEGY - Panoro hired partner, Evercore, to conduct the sales process. The sales story was built on intriguing 'pure play West Africa with two exiting fast track development assets' theme. Together with Panoro's solid financial situation Evercore was in good position to attract appetite amongst various industry players. Evercore seems to be competent and experienced partner with good contacts. I believe they were able to come up with long list of potential buyers quite quickly in early January. I would also expect that Panoro and Evercore sent out Information Memorandum to investment banks and market in general during January.

    3. MARKETING - Data room was probably opened already in January as well. In my opinion there was plenty of time to market the company during the time when Manati transaction was still pending approval. Evercore has likely contacted quite many potential buyers, agreed NDAs and arranged purchaser meetings for those that have indicated early interest. The 2-3 month period, in this case mainly February-March, is in general adequate time to screen the interest towards the company and the assets. I assume that the initial long list of companies were narrowed down and approximately the time when Manati transaction was approved, management of Panoro had a picture what kind of players there will be on the opposite side of table.

    4. EVALUATION OF OFFERS - CEO Jan Kielland mentioned in an investor meeting back in late March that a clear deadline would be communicated to all interested parties after Manati transaction was approved. I would estimate that the solicitation of indicative offers takes 4-6 weeks, so considering Manati approval date this should be ready at end of April or early May. In the sales process these indicative offers are not yet binding but the purpose is rather to narrow down the buyers even further of which the more serious acquisition negotiations will start. So my personal estimation is that Panoro is close to this point at the moment. It is also natural that these offers will not be communicated to the market. After the given deadline has passed and the received offers evaluated there will be period of negotiations. It is probably very short list of buyers which will be left in the race. These buyers will get a chance to go through all relevant data in very detail and expect to get answered in all questions they might have. Quite possibly they will also get a chance to see the first detailed results from the Dussafu (Gabon asset) 3D seismic survey. Hard to say but this phase might also take good 4-6 weeks. Based on this time estimate it will be until late May - mid June before anything concrete about the offers is communicated to shareholders. In very best case management is able to communicate something in the May 15th Annual General Meeting. A Lot is of course depending what will be Panoro's communication policy? If they are open e.g. regarding possible exclusivity agreement with one buyer to move forward towards finalization of the deal. However Panoro might opt to not communicate anything even at this point.

    5. DUE DILIGENGE & CLOSING - I estimate that the final phase of the sales process takes at least 2 months considering the upcoming holiday period. Most people understand the concept of due diligence so I won't go into any details of the process. Basically company is inspected thoroughly and all the conditions and terms of the final sale-purchase agreement is negotiated. All legal angles are tackled and so forth. In best case the closing of the sales process will happen in mid-August and in base case latest at the end of September. Let's see how this plays out.

    Disclosure: I am long PESAF.

    Additional disclosure: The content of this article is based on my personal opinions and should not be interpreted as factual knowledge regarding the progress of the sales process. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

    Themes: Oil E P Stocks: PESAF
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