Lucky Talisman?

16 December 2014 By Fiona Maharg-Bravo

The Spanish oil group is paying a big premium for the Canadian producer. The deal adds diversification after Argentina expropriated its YPF unit but also brings problematic North Sea assets. Repsol is hoping for a Talisman turnaround and an oil price recovery. Both are uncertain.

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Repsol has agreed to buy Canada’s Talisman Energy for 6.64 billion euros ($8.3 billion) in cash, a premium of 56 percent to the closing price on Dec. 15, and a 75 percent premium to the weighted average of the last seven days. The deal will boost the Spanish company’s production by 76 percent to 680,000 barrels per day. Including net debt, the value of the transaction is $12.9 billion.

Repsol said it would part-finance the deal using $6.3 billion of proceeds it recovered from the expropriation of YPF in Argentina. The company will also issue 5 billion euros in hybrid bonds to retain its investment-grade rating, as well as sell $1 billion in assets.

Repsol expects to reap $220 million in annual synergies from cutting costs in areas such as corporate overheads. It said the capitalised net present value of those savings is $1 billion and that the deal would be cashflow accretive from day one and accretive to earnings per share from 2017.

Previous merger talks between the two had broken down last summer, according to Reuters, due to Talisman’s underperforming North Sea assets. Talisman said in November it could take a “material” charge for those assets.

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