Royal Dutch Shell (NYSE:RDS.A) (LSE: RDSA, RDSB) (PINK:CNVGF) finally dropped its bid to acquire Cove Energy (LN:COV), the oil and gas exploration company in Mozambique. The company announced yesterday that it will not change its offer, and it is not interested in the auction process.
Shell had been courting the shareholders of Cove Energy to accept its takeover since February. The company extended its deadline several times, but Cove Energy had been holding back its decision to accept Shell’s offer.
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PTT Exploration and Production of Thailand (BAK:PTTEP) offered a higher bid, as Cove Energy keeps delaying its decision. Britain’s Take Over Panel decided to conduct a formal auction process, if Cove Energy is unable to reach a decision by Wednesday.
The auction process prompted Shell to abandon its bid for Cove Energy. A spokesperson from Shell explained that the company’s decision is practical after considering the market valuation, and the potential of the existing assets of Cove Energy.
Peter Hutton, analyst from RBC Capital, said Shell’s decision is sensible. According to him, the company took the heat out of the market, and he emphasized that Shell can still pursue other options to access Mozambique’s natural gas reserves.
Following Shell’s announcement, the shareholders of Cove Energy recommended the immediate acceptance of the offer submitted by PTT Exploration and Production of Thailand (BAK:PTTEP).
PTT outbids Shell’s takeover offer by 9.1 percent. Shell offered or £1.12 billion ($1.74 billion) to acquire Cove Energy, while PTT offered £1.22 billion. The board of directors of Cove Energy strongly recommended PTT’s bid citing that it is in the best interests of the company’s shareholders.
In a statement, John Craven, chief executive officer of Cove Energy said, “The bid from PTT represents significant value for shareholders, and confirms the world class nature of Cove’s East African assets.”
Shell and PTT were battling to acquire the 8.5 percent stake of the Rovuma Area 1 natural gas field in Mozambique, which holds approximately 30 trillion cubic feet of recoverable natural gas. Rovuma Area 1 is operated by Anadarko Petroleum.
According to analysts, if the shareholders accept PTT’s offer, the company will be able to ease the increasing demand for natural gas in Thailand. The deadline for Cove Energy’s shareholders to accept PPT’s bid is on July 25.