Fresh bid by Oil India, Indian Oil for Gulfsands likely

Oil and gas producer Oil India (OIL) and refiner Indian Oil (IOC) are likely to put in a fresh bid for the London-listed Gulfsands Petroleum, according indications from senior management.

The two companies had made a 50:50 joint all-cash offer of 315 pence per share for the firm on March 18, after consulting institutional investors in Gulfsands who hold a large chunk of the petroleum explorer’s stock, including Schroders, which holds 22% stake.

The offer, which valued the British firm at £81 million, was ejected by Gulfsands, reportedly with the suggestion that it should be raised to 400 pence per share.

The British company, with assets in the Middle East and North America, has now approached the takeover panel for it to set a deadline for the two Indian firms to come up with a better offer. According to British takeover law, any company that has been approached by a potential acquirer has the right to demand a deadline, which is usually set by the Takeover Panel of Britain.

“We will have to do something now,” said a senior official with one of the two Indian firms. “We are definitely going to do something, but it is too early to disclose what it will be,” he added, when asked if a new proposal was in the works.

Most analysts consider the 400 Pence valuation demanded by Gulfsands management to be unreasonable.

The stock was trading strictly below 250 pence till it revealed that it had been propositioned for 315 pence on March 18. Since then, it has been trading at around 325 pence per share.

Industry sources expect the Indian firms to make one more try, though they may not match the management’s expectation of 400 pence a share.

The companies, however, have little time to formulate a new offer as the Takeover Panel is likely to give only a few weeks for them to make a ‘formal offer’.

Due to the size of the deal, both companies will have to seek the Indian government’s nod before making a binding offer. The process itself is long drawn, as the proposal has to be approved at various levels, such as the ministry, committee of secretaries and finally the Cabinet, before it is cleared.

IOC and OIL will be barred from making any offer for six months if they fail to make a formal offer to Gulfsands within the window set by the Panel.

Gulfsands has most of its oil assets in Syria and Gulf of Mexico and produces around 14,000-17,000 barrels of oil per day, comparable to the production of a medium-sized oil field in India.

OIL is very keen to make acquisitions as it is sitting on huge cash reserves and plateauing or declining oil fields.

It is estimated to have $2.5 billion at its disposal for making acquisitions, one of the promises it had made at the time of its initial public offer late last year.