MARKET REPORT: Tullow Oil and Capricorn Energy in merger

MARKET REPORT: Two of London market’s biggest oil firms, Tullow Oil and Capricorn Energy, in spotlight after signing landmark merger deal

Two of the London market’s biggest oil firms were in the spotlight after signing a landmark merger deal. 

Tullow Oil and Capricorn Energy, both constituents of the FTSE250, agreed an all-share tie-up that will create a new entity worth just over £1.4billion. 

Under the terms of the deal, investors will receive 3.8 Tullow shares for each share they currently own in Capricorn. 

Fired up: Tullow Oil and Capricorn Energy, both constituents of the FTSE250, agreed an all-share tie-up that will create a new entity worth just over £1.4billion

Following the merger, Tullow shareholders will own 53 per cent of the combined group and Capricorn investors the remaining 47 per cent. 

The two firms believe the deal, due to be completed later this year, will create a ‘stronger, more resilient business’ focused on Africa that could ‘generate significant future returns for shareholders’. 

Capricorn shares rose 1.2 per cent, or 2.3p, to 200.8p following the news while Tullow dipped 2 per cent, or 1.1p, to 53.5p. It marks a change of fortune for Tullow, which last year saw its future in doubt before striking a £1.4billion refinancing deal. The tie-up has also clarified the outlook for Capricorn, which in 2021 finally settled a long-running tax dispute with the Indian government after agreeing to cough up £556m. 

The combined group will be led by Tullow’s boss Rahul Dhir and plans to set a base dividend worth £48m. 

‘A merger of equals between Capricorn Energy and Tullow Oil reflects how far both have fallen since their glory days – when they were both propelled by exploration success to the ranks of the FTSE 100,’ said AJ Bell investment director Russ Mould. 

There was other notable activity in the oil and gas sector, with Aberdeen-based John Wood Group announcing the sale of its consulting arm Built Environment for £1.5billion. The division has been sold to Canadian firm WSP Global. 

While Wood said the sale would help it accelerate its strategy to be ‘a leader across energy security and sustainability’, the shares tumbled 6.4 per cent, or 15.2p, to 223.4p. 

It came as the competition watchdog launched an inquiry into BT’s joint venture with US media giant Warner Bros Discovery. 

The tie-up will see BT Sport combine with Eurosport, but the CMA is investigating whether it will lead to a ‘substantial lessening of competition’ in the market. 

And the telecoms giant’s annual report revealed boss Philip Jansen was paid £3.5m in the year to April, a 32 per cent jump from the year before. 

The FTSE100 was down 0.98 per cent, or 74.71 points, at 7532.95 while the FTSE250 dropped 0.71 per cent, or 145.05 points, to 20272.90. 

Energy and telecoms firms were proving to be the biggest weights on the blue-chip index, with National Grid dropping 4.3 per cent, or 50p, to 1121p while Vodafone fell 3 per cent, or 3.8p, to 126.7p. And Rolls-Royce was one of the top risers after analysts at broker Jefferies hiked their target price on the stock to 100p from 95p. 

Grocery firms were in focus amid hopes they would receive a mini sales boost as the Platinum Jubilee celebrations got under way. 

However, the excitement caused little movement in the shares, with Tesco mostly flat at 258.9p while Sainsbury’s was 227.2p. 

The festivities also threatened to be gloomy for the wider economy, with Hargreaves Lansdown analyst Susannah Streeter warning the Jubilee would hit productivity over the long weekend. She added: ‘The Golden Jubilee celebrations in 2002 saw production fall by 5.4 per cent and it dipped again in 2012 for the 60th anniversary.’ 

Chemicals group Johnson Matthey dropped 0.5 per cent, or 10p, to 2100p despite completing the sale of its health business. 

The group offloaded the division to private equity group Altaris Capital in a £325m deal. Johnson will retain a 30 per cent stake in the business, rebranded as Veranova.