Vetra Looking to Steer Suroco Shareholders Away from Petroamerica Merger

Vetra Looking to Steer Suroco Shareholders Away from Petroamerica Merger

By: Tomas Ronolski - AllPennyStocks.com News

Tuesday, June 10, 2014

Merger and acquisition offers have been flying around this month, including lunchmeat maker Hillshire Brands having to keep its head on a swivel to keep pace with leapfrogging offers by Tyson Foods and Pilgrim’s Pride Corp. Pilgrim’s Pride finally removed itself from the equation on Monday, backing down after Tyson offered $63 per share to acquire Hillshire, a 40 percent premium to where Pilgrim’s Pride started the bidding about two weeks earlier. On Tuesday, Botox maker Allergan officially rejected the most recent bid of about $52.7 billion by Valeant Pharmaceuticals to acquire it; saying the bid undervalues the company and is not in the best interest of its shareholders. In some smaller M&A activity, privately-held Vetra Acquisition Ltd., a subsidiary of VETRA Holding S.a.r.l., said after Monday’s closing bell that it would pay 60 cents per share in cash, or about $80 million, to acquire Suroco Energy Inc. (TSX-Venture:SRN). Vetra calls this offer “compelling and superior” to the proposed takeover offer by Calgary-based Petroamerica Oil Corp. (TSX-Venture:PTA) announced on April 28 comprised of a share swap that values Suroco at 57.3 cents per share. That agreement was expected to be concluded this month.


Vetra owns large stakes in three of four Columbian oil and gas exploration and production properties, which essentially comprise the total value of Suroco.

Vetra’s offer, which represents an 86-percent premium to the 20-day volume weighted average price of shares of SRN the day before the Petroamerica deal was announced, is conditional on Suroco ditching its merger agreement with Petroamerica. In Vetra’s announcement of the offer, they urged SRN shareholders to vote against the Petroamerica arrangement.

Like Suroco, Petroamerica has centered its portfolio of energy properties in Columbia. The company has increased production from about 1,500 barrels of oil per day (bopd) to about 6,000 bopd in the past two years and forecasts the torrent growth rate to continue. According to a Bloomberg article on Monday, Petroamerica expects production to rise to 20,000 bopd with the acquisition of Suroco and additional exploration work leading to more producing wells as it moves into the oil-rich Putumayo Basin in Columbia thanks to Suroco.

The merged company will have about 8 million barrels of probable reserves in Columbia.

Vetra cited an inadequate funding position for the Petroamerica/Suroco Company to adequately develop their existing asset base or to conduct a substantial exploration program, less risk, limited synergies of PTA and SRN and large financial commitments by the two small companies as reasons their offer is better for Suroco shareholders. Vetra also argues that Suroco applying to have Alentar Holdings Inc., who owns more than 10 percent of SRN shares, to be permitted to vote with the minority is unfair and not aligned with shareholders.

It’s fair to say, though, that Vetra didn’t draw much market excitement by coming in with an offer right where Suroco closed trading on Monday, rather than goosing the offer to, say, 65 or 70 cents per share in cash, which would have given shareholders a little bit more to think about. After all, Suroco’s board quickly rejected an offer of 55 cents per share from Vetra about three weeks ago. What makes Vetra think a 60-cent offer was going to turn heads? Suroco’s only public response to the new Vetra offer was that the statement by Vetra disclosing the offer Monday night contained “numerous inaccuracies” and Suroco’s board urged shareholders not to take any action at this point. Investors still may be looking for a bidding war as well, with shares of SRN trading at 63 cents on Tuesday halfway through the session. Either that or investors are showing more enthusiasm for the upside potential of the Petroamerica merger than cash for shares. Proper due diligence is, as always, encouraged.

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