Sitting at the top of the FTSE All-Share leader board today is Fortune Oil (LSE: FTO), which is up around 46% after it was announced that it has been the subject of a bid approach. The suitor, Fortune Dynasty Holdings, already owns around 57% of Fortune Oil and is the biggest shareholder in the company. Under the terms of the deal, it will acquire the remaining 43% of shares in Fortune Oil, with the company being valued at around £388 million.
The deal is set to be completed in the first quarter of next year and will be implemented by way of a court sanctioned scheme of arrangement. Fortune Dynasty will pay £0.10 in cash per Fortune Oil share, as well as a contingent entitlement to a further £0.05 per share in cash or loan notes via a contingent value right. Importantly, the deal is being championed by Fortune Oil’s board, who seem to believe that this is the best outcome for investors in the company.
Positive News
Clearly, the news is positive for investors in Fortune Oil and brings to a close a challenging period for them. In fact, Fortune Oil’s share price had fallen by a round a third during the course of the year but, following today’s exceptional gains, is now flat year-to-date. Given the collapse in oil prices in 2014, this is a relatively good result.
Furthermore, Fortune Oil’s recent results highlighted a significant fall in profit. It fell to £9.7 million in the first half of the year, which was well down from the comparable period’s figure of £228.4 million. And, even though last year’s figure did include gains of £214.9 million from the sales of assets, even with that gain excluded it still represented a fall in pre-tax earnings of around 28%.
Looking Ahead
Fortune Oil also cautioned against significant growth in China for natural gas over the medium term in its recent update, with government policies having the potential to dampen demand, while a slowdown in China’s growth rate could also harm sales in the region. With Fortune Oil being focused on China, this could have meant reduced profitability in 2015 and beyond.
So, while many investors may be sitting on losses if they bought shares in Fortune Oil while sentiment was high, the deal for Fortune Dynasty Holdings to acquire the remaining 43% of shares in the company appears to be a sound one. And, with a number of other oil and gas stocks falling heavily during 2014, this could provide investors in Fortune Oil with an opportunity to reallocate their capital to relatively more attractive opportunities.