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PetroKazakhstan Inc. (PKZ) Message Board

  • maestronomer maestronomer Jun 30, 2005 1:20 PM Flag

    Aton PKZ Buyout Opinion

    Kazakhstan�s Energy Minister Vladimir Shkolnik said yesterday that the government
    has a pre-emptive right to match the buyer�s offer in the event the company agrees to be
    acquired. The market reacted by sending the stock down 13% to close at $33.95.
    Although we are still not clear on whether the pre-emptive right clause applies to just
    the sale of oil assets or the sale of oil companies as well, we see the news as neutral.
    While the reasons for the market�s reaction are understandable, we believe it
    misread the news. Generally, the presence of pre-emptive rights is considered a
    negative for M&A deal valuation since potential bidders may be discouraged to
    spend time and resources evaluating a bid proposal only to see it matched by a
    third party. However, we think that in the case of PKZ this rationale is not fully
    applicable for the following reasons:

    1. The potential bidders are not price- and time-sensitive private equity funds or
    financial investors; they are oil companies from countries desperately needing to secure
    additional oil supplies. Given their worldwide hunt for oil at almost any price,
    these companies (as well as any other potential industry suitors) are unlikely to be deterred
    from bidding by the threat of the exercising of pre-emptive rights. If anything,
    this could actually prompt them to bid slightly more aggressively to reduce the chances
    of a potential matching bid.

    2. We believe the new owner of PKZ will in any case have to secure political support
    for the deal from the Kazakhstan authorities (incidentally, this could be the reason
    for Chinese President Hu Jintao�s trip to Kazakhstan next week). If the new owner is
    viewed as politically acceptable by the local authorities and reaches agreement with
    them, Kazakhstan is unlikely to exercise pre-emptive rights.

    3. The news reports said potential bidders are due to submit bids this week, which
    suggests that a lot of the preliminary analysis and due diligence has already been completed.
    To summarize, we believe the market clearly overreacted yesterday on fears of the
    exercising of pre-emptive rights and concerns regarding the overall negative view of the deal
    by the local authorities. We believe that the Kazakhstan government very much wants to see
    the current management team leave and have a large strategic investor with long-term interests
    in the country take control of the company (admittedly, this long-term investor may be the
    national oil company KazMunaiGaz). We see a potential deal as very likely and potential
    valuation of at least $45-$50 a share, with an outside chance of a bidding war developing.
    Our recommendation remains Buy; we suggest investors use yesterday�s pullback as a
    buying opportunity.

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