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US hedge fund asks Capricorn Energy to ditch Israel deal

Person, Human, Helmet Reuters/Stoyan Nenov
Irenic's intervention challenges a deal that would create a London and Tel Aviv-listed gas giant

Irenic Capital Management, a hedge fund that owns a 1.5 percent stake in Capricorn Energy Plc, asked the natural gas producer on Wednesday to abandon its sale to Israel’s NewMed Energy LP in favour of selling its assets piecemeal.

Irenic’s intervention challenges a deal that would create a London and Tel Aviv-listed gas giant, at a time when European countries are looking for such companies to help with a supply crunch caused by Russia’s invasion of Ukraine.

Irenic told Capricorn’s board in a letter seen by Reuters that a liquidation, in which the company would auction off its assets, can deliver a 43 percent premium relative to its current share price and a nearly 40 percent premium relative to the NewMed deal.

Capricorn and NewMed spokespeople did not immediately respond to requests for comment.

The company’s stock price closed up 0.25 percent at 244.60 pence

The NewMed transaction would result in Capricorn being paid a $620 million special dividend. It would also leave them with a 10.3 percent stake in the combined company, with NewMed shareholders owning 89.7 percent. Excluding the special dividend, the deal values Capricorn at $338 million.

A liquidation could value Capricorn’s assets at 350 pence per share, versus the 254 pence-per-share valuation in the NewMed deal, according to Irenic.

“The company has yet to present shareholders with any proposal that represents superior value relative to the straightforward liquidation value we have assessed,” Irenic wrote in the letter.

Adam Katz, one of the firm’s partners, plans to present his thesis at the SohnX San Francisco investment conference later on Wednesday.

Capricorn has had to abandon a deal before because of shareholder opposition. Prior to agreeing on a sale to NewMed, Capricorn scrapped plans to merge with Tullow Oil Plc in a deal that would have valued Capricorn shares at 210 pence and would have given Capricorn investors 47 percent of the new entity. Large Capricorn investors, including Schroders and Madison Avenue Partners, argued there were few synergies between the two companies.

NewMed holds a 45.3 percent stake in the giant Leviathan field off the coast of Israel, the largest gas reservoir in the Mediterranean.

New York-based Irenic said it views NewMed’s assets as more attractive than Tullow’s but noted that “their value remains highly uncertain.” It added that the merger appeared to have “limited strategic rationale” beyond offering NewMed with a premium listing on the London Stock Exchange.

Irenic, a new activist hedge fund founded last year by former Elliott Management and Indaba Capital Management executives, has been making headlines in the last weeks by pushing industrial and aerospace manufacturer Barnes Group Inc to refresh its board and consider selling all or parts of the company and by calling on News Corp to split its media and real estate units as it considers reuniting with Fox Corp.

Katz, who worked at Elliott, and Andy Dodge, a former Indaba partner, have raised roughly $500 million in assets across various funds, sources familiar with Irenic’s fund said.