Afren (LSE: AFR) jumped by as much as 10% in early trade this morning, after the company announced that it had settled a dispute with its former chief executive officer and chief operating officer. Both executives were fired after the company discovered that the two had made, and received payments from the company, without board approval.
Afren has now secured the repayment of $17.1m from former CEO Osman Shahenshah and COO Shahid Ullah. Additionally, Afren received $3m from the pair to cover legal costs and as a result of these settlements, Afren has agreed not to pursue the matter in court.
Unauthorised payments
This settlement draws a line under Afren’s dealings with its former CEO and COO and it also marks an end to a period of uncertainty for the company.
Afren fired these two members of its senior management team for “gross misconduct” during October, after suspending them at the end of July.
The investigation into unauthorised payments found that three transactions, between the explorer and partners in 2012 and 2013, were made without board approval. The entities to which these payments were made, had ties to Osman Shahenshah and Shahid Ullah.
Moving forward
Now Afren has settled with the executives, the company can move on and put this issue behind it. Moreover, the possibility of a firm takeover bid from Nigeria’s SEPLAT Petroleum Development Company (LSE: SEPL) — Seplat for short — has increased.
Indeed, Afren’s management revealed that Seplat had made an offer for the company at the end of last year, although management did warn that this approach was, “highly preliminary”. It’s likely that the investigation into unauthorised payments was preventing Seplat from making a final bid.
Under UK takeover rules, Seplat has until 5.00 pm on 19 January 2015 to either announce a firm intention to make an offer for Afren, or announce that it does not intend to make an offer for Afren. So, investors should have some more clarity on the status of the offer within a few weeks. Afren’s market value fell to a low of £370m two weeks ago and Seplat is sitting on around $500m of cash after listing in London earlier this year. News releases show that since the end of September, Seplat has acquired just over 7% of Afren.
The bottom line
Afren’s deal with its former executives will allow the company to move forward and the prospect of a bid for the company is now higher than ever. However, as noted above, there’s no certainty that a bid will come from Selpat and for this reason I’m cautious about the company’s outlook.