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Pricing good for target while acquirer gains strategic investment back
Iberdrola achieved an important strategic investment when it invested $55 million by way of placing of new ordinary shares for a 22.6 per cent shareholding in Petroceltic. While for Petroceltic the pricing of the equity placing was done at a 41 per cent premium to its previous day closing share price in this year’s Equity Linked Deal of the Year
Iberdrola is included in a second winning deal in this year’s awards after its success in the Capital Issues Deal of the Year, featuring in the award for Equity Linked Deal of the Year for the strategic alliance and financing arrangements between Iberdrola and Petroceltic International which took place in June 2008.
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To reinforce the alliance, Iberdrola invested $55 million by way of placing of new ordinary shares for a 22.6 per cent shareholding in Petroceltic. The proceeds of this equity placing are being used to intensify and accelerate work programmes across all of Petroceltic’s existing portfolio and particularly in Algeria.

In addition, Petroceltic granted a financing option to Iberdrola to acquire a 49 percent financing interest in any single material asset from its existing portfolio for a further $55 million. An advance option consideration of $7.3 million was payable by Iberdrola three months from the date of the transaction which will be deducted from the final option consideration if exercised. The option will expire if not exercised on or before May 1st 2010.
Barry Devereux

Iberdrola is the fourth largest electricity company in the world by market capitalisation. This deal is Iberdrola’s first investment in an upstream oil and gas venture, which will help it to secure equity gas for its power generation activities and reflects the growing demand from the major utility companies to secure energy supply. Barry Devereux at McCann FitzGerald, who advised Petroceltic in relation to its strategic alliance and financing arrangements, says that, ‘the investment reflects the growing demand for the major utility companies to energy supply.’

A joint business committee has been formed between the two companies to manage the strategic alliance and to consider further join business co-operation in upstream assets and potential acquisitions.

Challenges that emerged during the deal process included ‘the negotiation of a significant number of detailed commercial, legal and shareholder documentation including a subscription and shareholders agreement, a financing option agreement and various share capital proposals that were required to be approved by Petroceltic shareholders,’ says John Frain at Davy Corporate Finance, who acted as financial adviser on the deal. Frain also comments that, ‘to have attracted and reached agreement and investment by Ibedrola was a significant achievement, particularly in light of difficult stock market conditions and limited access to capital markets at that time for companies at Petroceltic’s stage of development. Of particular note was the pricing of the equity placing which was done at a 41 percent premium to Petroceltic’s previous day closing share price.
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