The Investment Column: Price is not right for Clyde
Saturday 18 January 1997
Simple things first. Clyde would appear to have essentially given up hope of remaining independent. Halfway through the 60-day bid timetable, the dispute has boiled down to price. Either Gulf will convince investors that its 105p tabled offer is full and generous, or it will up its offer, or a third party will ride over the horizon on a white charger.
As for the details, Gulf's arguments are as follows. Clyde should be valued as UK oil companies always have been, relative to its underlying net asset value, essentially the net present value of the expected cash flows from the assets it owns. With analysts' estimates for that between 70p and 80p, Gulf claims its 105p represents a sizeable premium for control. If Clyde thinks it is worth so much more, asks Gulf, why have its directors sold more than 450,000 shares in the past year at prices between 63p and 81p?
Clyde claims it is not like most small UK exploration stocks, long on hope value but short on real revenues; it is more akin to small US oil producers, with reliable, predictable production, and should be valued on the US model which is a multiple of historic cash flows.
Getting a US oil consultant to put its name to a suggested range of multiples (5.3 to 6.4 times), Clyde calculates a fair value, on the basis of 1996's 27.6p cash flow, of between 146p and 177p. Chip in a premium for control, Clyde says, and we might think about it. By the way, our directors had more shares at the end of 1996 than at the beginning despite the sales.
Clyde now has 10 days more before day 39 of the bid timetable, which is the last date it can furnish new information to shareholders. Gulf then has a further week to come up with a final offer, which will remain open for another two weeks during which a white knight may emerge.
Key to the outcome will be whether or not Clyde comes up in the next 10 days with an independent assessment from Energy Resource Consultants of the value of its assets - essentially playing the game according to Gulf's rules. If it can secure a high enough figure, Gulf will be more or less forced to up the ante. If it can't, or chooses not to publicise the figure, then Gulf might have an argument that Clyde's cash flow approach is too optimistic. Whichever, with the shares at a high of 123p, there is time to wait and watch.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...