Voting Decision Tree

[Northoil]

After all the discussion, how to vote, pros and cons, what Exxon will or won’t do and when, below are what I think are the options and outcomes re the vote on the Exxon proposal:

1.  The proposal passes. You get $45 in Exxon stock and a CVR, the value of which depends on the result of A7 and the certification process.  While the market currently values the risked CVR at $4 ($49-45), in most people’s opinion, myself included, the drilling and certification will give us an additional $7-15.  However, it may be optimism and pride of ownership; there’s no certainty, A7 could be a bust and the CVR could be worth nothing.  Exxon anticipates the drilling, certification and value will be resolved and paid, if any, in the second quarter, 2017.

     1a.  If you vote “yes”, you get the deal.

     1b.  If you vote "no", you get the deal anyway.

     1c.  If you vote "no with dissent", your stock passes to Exxon.  The buyout proceeds; however, you are now in the dissent pool.  You get what the court decides, when they decide it.  The value is ascertained under current conditions; i.e., the current environment of low oil and gas prices and no A7.  The process by what the court decides is at the option of the judge.  When the value is arrived at is questionable.  The proceeding itself could certainly take months(?), at least. Exxon/IOC has the right to appeal any outcome.  Exxon appealed the Valdez penalty for 25 years.  They have the stock, the deal has gone ahead, why would they be in any hurry to settle with dissenting shareholders?  You are locked into the entire process for however long it takes.  And P.S., how do you get representation in the court and at what price?  You have to join a class action.  Why hasn't this emerged?  What happens if it doesn't?

You can withdraw your dissent before the deal is finalized.   But why would you do this or why did you vote this way in the first place?  A dissent vote has value only if the deal passes and the court gives you a higher price.  I don't think you can say you'll know what the price is in time to withdraw.

2.  The proposal doesn’t pass.  It doesn’t matter how you voted.  You’ve still got your stock at whatever the market price is.

     2a.  No reaction from Exxon or Exxon announces it won’t proceed.  Some people like this result, anticipating IOC has the wherewithal to proceed on its own with future Total payments, the selling of various assets, loans, stock dilutions, etc.  However, this was already the situation before any offers were made!  People who prefer this already had what they are now asking for. And where was the stock?   In the $20’s.  I, among others, look at this option as a death spiral.  IOC has no expertise or credibility in the LNG business.  I believe there is no chance of a go-it-alone LNG project.  IOC has always been a find-it-and-sell-it company, even if they talked a different game.

What will the stock do?  On the day the announcement is made that the Exxon offer is rejected, barring immediate reaction by Exxon, the stock will drop – at least to the 30’s, which is pre-offer, and I think lower.  We will have a 4-6 million share day as people bail out.  From there, a steady decline.  Again, consider the situation after the Total deal, an arms-length “good” deal, was announced.  The stock dropped, in one day, from $90 to the $50’s, then over months to the low $20’s.  It recovered to the $30’s anticipating a sale, then to $40 and then to $50 as the Oil Search and Exxon deals were announced.  If the offer is rejected, the stock is likely back to the $20’s and then lower(the death spiral).

     2b. The proposal looks like it won’t pass, so Exxon, who will be getting a count of the votes, sweetens the offer before the count is final.  This is the best possible outcome for everyone.  We get a better offer and presumably a new vote.  However, we start the process again.

The problem with this limb is that Exxon has to see a significant “no” vote, which runs into the possibility of the vote actually failing and Exxon walking.  Anyway you have to ask yourself: why would Exxon step in?  Why not wait?  If the deal passes, fine.  If not, let the stock crash and wait a while when people are more receptive (see below).

     2c.  Exxon waits and offers a new deal down the road.  If it’s quick, then it’s a better deal, the stock recovers and those not in heart attack rehab are happy.  If they wait, depending on how long, the deal could be better or worse.  Exxon is a juggernaut: super-smart and super-disciplined.  People who think “oh, well, they have the money, they’ll make a new offer, they’ll settle with dissenters, they’ll do it all quickly” have never dealt with Exxon.  They are not likely to act quickly and will maximize every benefit to Exxon.  

Barring any surprises in the actual voting documents, my conclusions are: 1.  Vote yes and get a blue-chip, dividend-paying stock and a CVR and move on with your life,   2.  Vote no and take a huge market risk, but which could pay off if lovable Exxon cooperates, and 3.  Vote Dissent, only if you can join a class-action group, and be prepared to tie up the value potentially for years.  Again, it might get you a higher price and it could be quicker.  My guess is the judge says it was a competitive, unchallenged offer and that's what you get.  I.e., a waste of time.  Or, 4. Sell the stock now, take the extra $4, pass on the upside of the CVR and avoid the unpleasant possibilities of a "no" vote.

[katytrader]

After all the discussion, how to vote, pros and cons, what Exxon will or won’t do and when, below are what I think are the options and outcomes re the vote on the Exxon proposal:

1.  The proposal passes. You get $45 in Exxon stock and a CVR, the value of which depends on the result of A7 and the certification process.  While the market currently values the risked CVR at $4 ($49-45), in most people’s opinion, myself included, the drilling and certification will give us an additional $7-15.  However, it may be optimism and pride of ownership; there’s no certainty, A7 could be a bust and the CVR could be worth nothing.  Exxon anticipates the drilling, certification and value will be resolved and paid, if any, in the second quarter, 2017.

     1a.  If you vote “yes”, you get the deal.

     1b.  If you vote "no", you get the deal anyway.

     1c.  If you vote "no with dissent", your stock passes to Exxon.  The buyout proceeds; however, you are now in the dissent pool.  You get what the court decides, when they decide it.  The value is ascertained under current conditions; i.e., the current environment of low oil and gas prices and no A7.  The process by what the court decides is at the option of the judge.  When the value is arrived at is questionable.  The proceeding itself could certainly take months(?), at least. Exxon/IOC has the right to appeal any outcome.  Exxon appealed the Valdez penalty for 25 years.  They have the stock, the deal has gone ahead, why would they be in any hurry to settle with dissenting shareholders?  You are locked into the entire process for however long it takes.  And P.S., how do you get representation in the court and at what price?  You have to join a class action.  Why hasn't this emerged?  What happens if it doesn't?

You can withdraw your dissent before the deal is finalized.   But why would you do this or why did you vote this way in the first place?  A dissent vote has value only if the deal passes and the court gives you a higher price.  I don't think you can say you'll know what the price is in time to withdraw.

2.  The proposal doesn’t pass.  It doesn’t matter how you voted.  You’ve still got your stock at whatever the market price is.

     2a.  No reaction from Exxon or Exxon announces it won’t proceed.  Some people like this result, anticipating IOC has the wherewithal to proceed on its own with future Total payments, the selling of various assets, loans, stock dilutions, etc.  However, this was already the situation before any offers were made!  People who prefer this already had what they are now asking for. And where was the stock?   In the $20’s.  I, among others, look at this option as a death spiral.  IOC has no expertise or credibility in the LNG business.  I believe there is no chance of a go-it-alone LNG project.  IOC has always been a find-it-and-sell-it company, even if they talked a different game.

What will the stock do?  On the day the announcement is made that the Exxon offer is rejected, barring immediate reaction by Exxon, the stock will drop – at least to the 30’s, which is pre-offer, and I think lower.  We will have a 4-6 million share day as people bail out.  From there, a steady decline.  Again, consider the situation after the Total deal, an arms-length “good” deal, was announced.  The stock dropped, in one day, from $90 to the $50’s, then over months to the low $20’s.  It recovered to the $30’s anticipating a sale, then to $40 and then to $50 as the Oil Search and Exxon deals were announced.  If the offer is rejected, the stock is likely back to the $20’s and then lower(the death spiral).

     2b. The proposal looks like it won’t pass, so Exxon, who will be getting a count of the votes, sweetens the offer before the count is final.  This is the best possible outcome for everyone.  We get a better offer and presumably a new vote.  However, we start the process again.

The problem with this limb is that Exxon has to see a significant “no” vote, which runs into the possibility of the vote actually failing and Exxon walking.  Anyway you have to ask yourself: why would Exxon step in?  Why not wait?  If the deal passes, fine.  If not, let the stock crash and wait a while when people are more receptive (see below).

     2c.  Exxon waits and offers a new deal down the road.  If it’s quick, then it’s a better deal, the stock recovers and those not in heart attack rehab are happy.  If they wait, depending on how long, the deal could be better or worse.  Exxon is a juggernaut: super-smart and super-disciplined.  People who think “oh, well, they have the money, they’ll make a new offer, they’ll settle with dissenters, they’ll do it all quickly” have never dealt with Exxon.  They are not likely to act quickly and will maximize every benefit to Exxon.  

Barring any surprises in the actual voting documents, my conclusions are: 1.  Vote yes and get a blue-chip, dividend-paying stock and a CVR and move on with your life,   2.  Vote no and take a huge market risk, but which could pay off if lovable Exxon cooperates, and 3.  Vote Dissent, only if you can join a class-action group, and be prepared to tie up the value potentially for years.  Again, it might get you a higher price and it could be quicker.  My guess is the judge says it was a competitive, unchallenged offer and that's what you get.  I.e., a waste of time.  Or, 4. Sell the stock now, take the extra $4, pass on the upside of the CVR and avoid the unpleasant possibilities of a "no" vote.

  Well-articulated decision tree.   But note in 1c. you omitted the offer to Dissenters prior to possibly the court deciding.  Some here have been assuming that such an offer is sure to be sweeter.  My assumption is that such an offer would be no increase of the $45 in stock, but would lift the CRP cap to either a higher cap or no cap. After all, is it not the upside that many dissenters have been saying they are entitled to?

[kommonsents]

There may be another possibility, depending on what the rules are governing things prior to and up to the vote date.

If the date of "record" is prior to the vote, one might sell after the date of record which may entitle one to the CVR if the deal passes so nothing lost.

And if the vote is NO, wait and buy back in when the dust settles....if one still wants more IOC action. That could net $49/share now and up to date of vote and still own rights to CVR if vote is YES.

I don't think the pps will change much under the present deal if the vote is YES since the deal is already priced in.

[Northoil]

There may be another possibility, depending on what the rules are governing things prior to and up to the vote date. If the date of "record" is prior to the vote, one might sell after the date of record which may entitle one to the CVR if the deal passes so nothing lost. And if the vote is NO, wait and buy back in when the dust settles....if one still wants more IOC action. That could net $49/share now and up to date of vote and still own rights to CVR if vote is YES. I don't think the pps will change much under the present deal if the vote is YES since the deal is already priced in.

__________________________________________________________________

Kommonsents - thanks for the comments.  I don't think what you suggest is possible.  The date of record for the vote is unrelated to what happens later on.  Assuming approval, to obtain the$45 in Exxon shares AND the CVR you have to deliver your IOC shares on the "effective date" (when the deal is consumated), which means you can't have sold them.

Yes, the deal is priced in, but your possibility of buying back in if the deal is voted down is a masochist's dream scenario.  It would take guts and a strong conviction that Exxon is coming back to the table, but it could be very profitable.

                                           ***************************

Katytrader - also thanks.  You're right, I overlooked it and it is a possibility that Exxon might settle with the dissenters before the court decides a value or even before it gets to court.  Personally, I don't think so.  First, I don't  think they'll lift the cap.  That's an open-ended payment which they would abhor.  Second, you have different classes of shares getting different prices.  It's not clean from their standpoint and makes them look predatory.  But, for argument's sake, assume a payment of ... what? $55? $70?  What would the group of dissenters be happy with?  Remember, if you dissent, you get "fair value", not Exxon stock and not a CVR.  The court could decide differently, but we're talking setlement offer.   Also, you have to assume you're part of a class action, so your lawyers, who are on contingency, might like a quick, low offer, take their large cut and you have a tax event.  Exxon doesn't NEED to settle.  They've got your shares, the deal proceeds and you're the one with the problem, not them.  If the court case appears to go badly, they could settle, but that's a big "if" and it could be a long time coming.  I know my resistance to a dissent vote shows, but I just think it's a pipe dream.

Oh, one other thing - if it goes to court and the judge decides the Exxon offer is a market price, you'll get it but you still have to pay your lawyers, so you'll wind up getting less than the yes or no votes.

[Palm]

Northoil, Kommon and Katy,

This is a very good overall summary, probably the best to date. I would add one more scenario which emphasizes North's point on XOM. They have been down this road many times and can afford to wait; for a good while.

Should a No vote prevail, they well may pull completely back to see what happens. IMO pps would drop and over time continue to do so. They know that it's unlikely tha serious bidders will emerge as XOM is already present and has the strongest hand. The question is, would OSH/Total come back in? If so, do they come back in lower? IMO XOM, OSH and Total all assume IOC is weak with a No vote. XOM is a shark and a very disciplined one.

[jft310]

Doomsayers.

[wapitidropiti]

There may be another possibility, depending on what the rules are governing things prior to and up to the vote date. If the date of "record" is prior to the vote, one might sell after the date of record which may entitle one to the CVR if the deal passes so nothing lost. And if the vote is NO, wait and buy back in when the dust settles....if one still wants more IOC action. That could net $49/share now and up to date of vote and still own rights to CVR if vote is YES. I don't think the pps will change much under the present deal if the vote is YES since the deal is already priced in.

__________________________________________________________________

Kommonsents - thanks for the comments.  I don't think what you suggest is possible.  The date of record for the vote is unrelated to what happens later on.  Assuming approval, to obtain the$45 in Exxon shares AND the CVR you have to deliver your IOC shares on the "effective date" (when the deal is consumated), which means you can't have sold them.

Yes, the deal is priced in, but your possibility of buying back in if the deal is voted down is a masochist's dream scenario.  It would take guts and a strong conviction that Exxon is coming back to the table, but it could be very profitable.

                                           ***************************

Katytrader - also thanks.  You're right, I overlooked it and it is a possibility that Exxon might settle with the dissenters before the court decides a value or even before it gets to court.  Personally, I don't think so.  First, I don't  think they'll lift the cap.  That's an open-ended payment which they would abhor.  Second, you have different classes of shares getting different prices.  It's not clean from their standpoint and makes them look predatory.  But, for argument's sake, assume a payment of ... what? $55? $70?  What would the group of dissenters be happy with?  Remember, if you dissent, you get "fair value", not Exxon stock and not a CVR.  The court could decide differently, but we're talking setlement offer.   Also, you have to assume you're part of a class action, so your lawyers, who are on contingency, might like a quick, low offer, take their large cut and you have a tax event.  Exxon doesn't NEED to settle.  They've got your shares, the deal proceeds and you're the one with the problem, not them.  If the court case appears to go badly, they could settle, but that's a big "if" and it could be a long time coming.  I know my resistance to a dissent vote shows, but I just think it's a pipe dream.

Oh, one other thing - if it goes to court and the judge decides the Exxon offer is a market price, you'll get it but you still have to pay your lawyers, so you'll wind up getting less than the yes or no votes.

Northoil,

Thanks for the well reasoned summary.

"If it goes to court........"    Is another recipe for disaster. Just another group to screw IOC shareholders.

This poker game is taking place in a pirates den of thieves. From 300 years ago the only improvement is the smell. The XOM pirates smell better than yesteryear but they are still nasty MFers. The final hand is still coming and so far everyone has played by XOM's rules. They have the cards and the votes. They have been calling the shots (shorts) for years. We need a disruptive and greedy entrant. TOT can't be that gutless. I can't believe that there is not another player in the oil bidness with the stones to start shooting up the table. Just my opinion.

And Ken I'm not a doomsayer either. I need enlightenment from the economy. System please work and birth some competition.

[weaselpuppy]

[quote='Northoil' pid='75721' dateline='1471127596']

[quote='kommonsents' pid='75720' dateline='1471119137'] There may be another possibility, depending on what the rules are governing things prior to and up to the vote date. If the date of "record" is prior to the vote, one might sell after the date of record which may entitle one to the CVR if the deal passes so nothing lost. And if the vote is NO, wait and buy back in when the dust settles....if one still wants more IOC action. That could net $49/share now and up to date of vote and still own rights to CVR if vote is YES. I don't think the pps will change much under the present deal if the vote is YES since the deal is already priced in.

_

As a current shareholder, let's say I continue to hold until the voting opens. I vote, let's just say No, in advance of the Voting day.  If I sell on a later date than my vote, but prior to the Voting Day, what happens to those shares? Does the new owner get a vote with those shares as well? Lots of possibilities for shenanigans here.

I get that if the CRP Ownership is tied to a Date of Record, and as is being posited by Northoil here, that this date is after the Voting Day, then basically if you are a holder now, you have to play Russian Roulette with the vote outcome to get rewarded with  the CRP....or you get the double junk punch of the deal is voted down, the pps tanks AND no CRP.

If the above scenario plays out as far as dates, you could well see an appreciable # of shareholders view the risk/reward as too great, and a wave of selling of  this stock just before the Voting Day. It would pay to see the daily transactions on the run-up to Voting Day to see if it's institutions selling or just the small fry like me.

If you are still looooong on IOC and willing to wait out the next chapters of chaos if the deal fails, then you ignore it all. How many of these intrepid souls are left at this point?

[Putncalls]

Does the CRP have value or does the CRP not have value. That is the question.

[petrengr1]

http://budgeting.thenest.com/happens-shares-after-buyout-32701.html ;

I think there is no way to “game” the system.

If you owned the stock on or before the date of record, August 10, 2016,  you will be able to vote on the buyout deal. People that buy the stock after  the date of record will not be able to vote on the deal. People who sell the stock after the date of record may have already voted on the deal but they will not be entitled to the CRP. They only receive the price they sold at. Lately that price has been ~$49/share. They are pricing in the $45/share plus ~$4 for the future value of the CRP.

After the shareholders vote the IOC stock will continue to trade and you can buy and sell as usual. After the vote has been tallied if the vote is “yes” for the sale of the company, a date will be set for closing the deal. If you sell after the vote is known but before the closing date you will get whatever the market is pricing the stock at if you sell and you will not be entitled to any CRP. You will not get the CRP unless you own the stock on the effective date of the closing of the deal. When the deal is closed (effective date) you will receive $45’s worth of  Exxon stock valued at the average trading price of Exxon stock for the last 10 days before the effective date and the CRP of unknown value which is not tradable.

There is no way for you to benefit from both selling the stock at a higher price before the deal is closed and receive the CRP after the deal is closed. You will not get the CRP unless you own the stock on the date the deal is closed.

This is how I understand our situation. If I am wrong people who know more will no doubt correct what I have said above.