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Talisman Energy chief Hal Kvisle on $13B Repsol deal: 'Shareholders would be happy'

When Hal Kvisle came out of retirement to lead Talisman Energy Inc. as president and CEO in September 2012, it was only supposed to last 'for six months'

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CALGARY – When Hal Kvisle came out of retirement to lead Talisman Energy Inc. as president and CEO in September 2012, it was only supposed to last “for six months.”

Despite his intention to re-retire at the end of this month, Mr. Kvisle will stay on the job a little longer, he said Tuesday, after his company’s much-rumoured deal with Spanish energy company Repsol S.A. was finally done.

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The US$13 billion deal was announced just before midnight Monday and is expected to close next year, postponing Mr. Kvisle’s final days at the Calgary-based company.

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The deal for Talisman, one of Canada’s largest independent oil and gas producers, comes after six months of speculation during which global oil prices dropped 45%.

I think it would be hard not see that shareholders would be happy with this deal

Repsol will pay US$8.3 billion for Talisman stock plus the assumption of its debt. At US$8 per share, the offer marks a 75% premium to Talisman’s seven-day average share price.

“I think it would be hard not see that shareholders would be happy with this deal,” Mr. Kvisle said in a Tuesday afternoon press conference. “Our stock was priced at the $4 or $5 level for a reason and that was that with lower commodity prices, people could see that our cash flow per share was going to go down significantly.”

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The deal has been approved by Repsol’s and Talisman’s boards, but not by the Canadian company’s shareholders. A special meeting of Talisman’s shareholders is expected in February to vote on the proposed acquisition. Repsol spokesperson Kristian Rix said Tuesday the company expected the deal to close in the middle of 2015.

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New York-based activist investor Carl Icahn is the second-largest shareholder in Talisman with 7% of the company’s shares. Mr. Icahn revealed he had built up a large position in the company in October 2013, when the company’s shares traded for roughly $12 per share.

Mr. Kvisle said earlier Tuesday that Repsol’s offer was the best option available to the company, which has been selling off assets to pay down its debt.

He said that Talisman’s “assets were difficult to move in the current market,” and that the company was undercapitalized and that without Repsol’s bid would need to raise equity to shore up its balance sheet.

Global oil prices have plummeted 45% since June and closed the trading day Tuesday with the Brent benchmark price at US$59.86 per barrel, and the West Texas Intermediate benchmark price at US$56.05 per barrel. Analysts say that Talisman’s enterprise value has dropped over that period.

Talisman’s chairman Chuck Williamson said in statement the deal “creates significant and immediate value for Talisman stakeholders.” Some analysts, however, don’t feel the same way.

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“Some of the investor base may believe that the offer is too low and contest the deal,” Bernstein Research senior analyst Bob Brackett said in a research note.

Mr. Kvisle said the “overwhelming majority” of the company’s 10 largest shareholders “that we’ve spoken to … are highly supportive of the transaction.”

Mr. Icahn stands to lose $286 million under the terms of the Talisman/Repsol merger, according to Bloomberg. Mr. Icahn’s representatives on Talisman’s board support the offer, Repsol Chairman Antonio Brufau told reporters in Madrid Tuesday, Bloomberg reported.

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“This is damage limitation,” Morningstar analyst David Meats said in a telephone interview, adding that investors like Mr. Icahn who bought in at $12 a share or more “have taken a beating.”

“I’d still consider this to be a good deal,” Mr. Meats said, adding that US$8 per share was “a huge premium” over Talisman’s current valuation.

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Mr. Brackett said that, under the terms of the deal Repsol – which had been hunting for an acquisition since its $5-billion settlement with the Argentinian government in February over the nationalization of its assets there – is receiving a favorable price for Talisman.

Mr. Rix said Tuesday that Repsol had been looking to increase its business in North America, which it viewed as being more politically stable.

“The agreement with Talisman is the result of an exhaustive analysis of more than 100 companies and assets worldwide,” Repsol CEO Josu Jon Imaz said. “In every area, Talisman has always been the best option, because of the excellent quality of its complementary global assets, including its talent.”

Mr. Rix said that Talisman’s employees were valuable to Repsol because of their understanding of shale resource plays.

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