Pacific Rubiales Energy Corp drops record 42% after takeover bid quashed

Pacific Rubiales Energy Corp. shares and bonds plunged the most on record after the Colombian oil producer’s would-be suitors withdrew their takeover offer.

The stock dropped 42 % to US$3.07 at 9:36 a.m. in Toronto as its US$1.3 billion of bonds due in four years lost 14 %. Analysts cut their target price for the shares from the US$6.50 bid price to as low as US$0.25 amid concern the company will struggle to survive without a new buyer.

Mexico’s Alfa SAB and partner Harbour Energy Ltd. dropped plans to acquire Pacific Rubiales after its largest shareholder spurned the offer once valued at as much as US$1.7 billion.

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Without the takeover, analysts are focusing on how Pacific will shore up its finances given what the company itself has called “notable risks” that include the slump in oil prices, the loss of its main field next year and challenges at other Colombian projects, according to a June 18 statement.

“Pacific Rubiales has, in recent weeks, made it abundantly clear that, as an independent company, it will necessarily have to focus on cost-cutting, asset sales and debt reduction,” David Dudlyke, an analyst at Dundee Securities Ltd., said in a note in which he cut his target price to US$3. The deal’s breakdown also raises concern that Alfa, which holds just under a 19 % stake, may no longer want to partner with Pacific to drill in Mexico, Dudlyke wrote.

Pacific’s biggest investor, O’Hara Administration Co. wants to retain its stake, on the assumption that the company will be worth more in three years after board and management changes, spokesman Orlando Alvarado said Sunday. O’Hara said today in a statement that it was “pleased” the deal was terminated.

Ian Macqueen, an analyst at Paradigm Capital, cut his target price today to US$0.25, the lowest among estimates compiled by Bloomberg. – Financial Post/Bloomberg