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.
Aton is like any other brokerage. I think a number of posters here (not myself)know more than the brokerage houses. Aton just rides the train up or down. it's mostly hindsight. This recent "opinion" many here have made the same points well before them. They sell then issue "sell", buy then issue "buy" just like everybody else. I personnally don't agree with their valuation but they left themselves lots of wiggle room with "at least" and "bidding war" terminolgy
I hate to say it but I think ATON is right on the money and the stock gyrations of recent days indicate that the street thinks so as well. My prediction at the beginning of this adventure was $40-45 but I think now that ATON is closer to correct. God help us, though,on the stock price if a deal doesn't materialize.