06-17-2016, 04:53 AM
I don't know how one "holds the CVR"? RJ says:
Following the May 19 announcement that InterOil is being acquired by Oil
Search, the main near-term question has been: would IOC shareholders endorse this deal, or
instead go in a different direction as advocated by former CEO Phil Mulacek? This week the
question was answered as Mr. Mulacek lost the proxy fight for board control, and shareholders
delivered what can be seen as a decisive endorsement of the buyout. Following this, we are
downgrading InterOil to Market Perform from Outperform. From now until the expected deal
closing in 3Q, IOC shares will remain locked in arbitrage with Oil Search shares, reflecting the
fixed equity payment plus a small sub-$5 premium for the future contingent value right (CVR).
To be clear, we think the ultimate value of the CVR will end up being much higher than what is
currently priced in, thus we recommend IOC investors to hold their CVRs until resource
certification in 2017. However, since that amount will not be clear until long after the deal
closes, as a tactical matter, it is hard to see much outperformance in IOC shares between now
and deal closing.
Management decisively
Following the May 19 announcement that InterOil is being acquired by Oil
Search, the main near-term question has been: would IOC shareholders endorse this deal, or
instead go in a different direction as advocated by former CEO Phil Mulacek? This week the
question was answered as Mr. Mulacek lost the proxy fight for board control, and shareholders
delivered what can be seen as a decisive endorsement of the buyout. Following this, we are
downgrading InterOil to Market Perform from Outperform. From now until the expected deal
closing in 3Q, IOC shares will remain locked in arbitrage with Oil Search shares, reflecting the
fixed equity payment plus a small sub-$5 premium for the future contingent value right (CVR).
To be clear, we think the ultimate value of the CVR will end up being much higher than what is
currently priced in, thus we recommend IOC investors to hold their CVRs until resource
certification in 2017. However, since that amount will not be clear until long after the deal
closes, as a tactical matter, it is hard to see much outperformance in IOC shares between now
and deal closing.
Management decisively