Buru chairman launches $41m takeover

20/04/2009 - 11:54


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Perth-based oil and gas explorer Buru Energy has unveiled a $41 million takeover bid by a company linked to its chairman, which has proposed to fund the offer out of Buru's cash reserves.

Buru chairman launches $41m takeover

Perth-based oil and gas explorer Buru Energy has unveiled a $41 million takeover bid by a company linked to its chairman, which has proposed to fund the offer out of Buru's cash reserves.

Arenite Pty Ltd, a company associated with chairman Eric Streitberg and specifically formed for the takeover, is offering 25 cents for each Buru ordinary share and 2.5 cents for each listed option.

The offer is valued at $41.3 million, and Arenite said it will fund the offer out of Buru's existing cash reserves. At the end of December 2008, Buru had $59.3 million in cash and cash equivalents.

Should the takeover proceed, Buru will effectively be privatised and delisted from the stock market.

Buru's board, excluding Mr Streitberg, have recommended the proposal to shareholders and listed optionholders.

Buru was created following the merger between Australian Worldwide Exploration (AWE) and Perth company ARC Energy. AWE holds a 15 per cent interest in Buru.

Buru managing director Adrian Cook said talks have been held with major shareholders and broad support had been received.

"The independent directors think this as an opportunity for shareholders to consider their position," Mr Cook said.

"There isn't, in our view, a change in strategy or a lack of confidence in our strategy.

"It's a simple proposition that is a share price above where [Buru's] share price has traded historically."

Shares in Buru were up one cent to 23.5 cents at 13:52AEST. The company's share price has traded between a low of 15.5 cents and 37.5 cents since it listed in September 2008.

Earlier this year, Buru downsized its exploration efforts in the Canning Basin and reduced employee numbers in response to the current economic climate.

If the takeover does not proceed, Buru today said it may need to further defer exploration activities if economic conditions and oil prices do not improve.

Buru has several financial commitments that need to be met over the next five years including a $40 million obligation to Alcoa and $138 million minimum spend on its WA tenements.

"Fulfilling these commitments, together with Buru's ongoing overhead costs, is likely to cause Buru's underlying net cash backing to fall significantly below its current level," Arenite said in a statement.

Buru has an underlying net cash position of $39.3 million, Arenite said.

A scheme booklet regarding the proposal is currently being compiled an a shareholders vote is expected to take place in June.

Mr Cook, together with the rest of the board, will step down from the company if the takeover is successful.




Buru's announcements is below:



Buru Energy Limited ("Buru" or "Company") announces it has today agreed to present to shareholders and listed optionholders a proposal from Arenite Pty Ltd ("Arenite") to acquire all of Buru's shares and listed options ("Proposal").

The consideration for the Proposal is:

- $0.25 in cash per Buru share; and
- $0.025 in cash per Buru listed option.

The Proposal will be conducted via schemes of arrangement to be voted on by Buru shareholders and listed optionholders.

Adrian Cook, Managing Director of Buru said today: "The independent directors of Buru have resolved to recommend to shareholders and listed optionholders that they seriously consider accepting the Proposal, in the absence of a superior offer and subject to the independent expert concluding that the Proposal is in the best interests of shareholders and listed optionholders. The independent directors believe that Buru is currently in a sound position with cash reserves sufficient to pursue the Company's existing strategy in the short term.

However, the independent directors are cognisant of the high risks and costs involved in frontier exploration in the Canning Basin (recognising that the previous holder of Buru's Canning Basin acreage, ARC Energy Limited, invested some $52 million in two years exploring in the same area without a commercial discovery). The current state of the global economic environment may also mean that the Company may need to further defer exploration activities if economic conditions and oil prices do not improve, as foreshadowed in the Company's ASX announcement on 12 January 2009.

Bearing these risks in mind, the Proposal provides shareholders with an opportunity not otherwise available to them to realise cash for their shares at a premium to the current market value. The Proposal represents a premium of 32% to the 30 day volume weighted average trading price of Buru shares and a premium of 79% to the 30 day volume weighted average trading price of Buru options. The Proposal also represents a premium to the net cash backing of the Company taking into account the $40 million commitment to Alcoa, its committed exploration expenditure and its ongoing overheads.

If the Proposal is not supported by Buru shareholders and optionholders, the independent directors believe that Buru's existing strategy, which will be diligently pursued and kept under review going forward, continues to be appropriate for the Company."

About Arenite

Arenite is a company associated with the current Chairman of Buru, Mr Eric Streitberg. Arenite was incorporated for the specific purpose of making the Proposal to Buru and intends to fund the Proposal using Buru's existing cash reserves. Arenite plans to meet the substantial ongoing commitments and liabilities of Buru using a combination of the remaining cash reserves of Buru and additional funds to be raised in the future as circumstances require. In addition, Arenite intends to undertake a review of the Company's activities and may undertake a combination of further deferrals of the exploration drilling program, relinquishment of acreage and renegotiation of commitments in a manner and to an extent that may not be acceptable to Buru shareholders.

Given Mr Streitberg's association with Arenite and to ensure there was no risk of actual or perceived conflict in Buru's assessment of the Proposal, the Buru Board adopted a series of protocols limiting Mr Streitberg's role in Buru and his access to information during the assessment of the Proposal. Under these protocols Mr Streitberg has agreed to stand aside from the Buru Board until such time as it is appropriate for him to resume his duties. He has had no participation or involvement in the assessment of the Proposal or in determining whether to recommend it to Buru shareholders and listed optionholders.

Buru's strategy

As previously disclosed to the market, Buru undertook a strategic review of its activities in late 2008 and early 2009 resulting in Buru deferring its planned 2009 drilling campaign and taking measures to cut costs throughout the organisation. The strategic review process also canvassed a number of alternative strategies to realise value for Buru shareholders, including mergers and other corporate activities, divesting assets and returning capital to shareholders.

In assessing the Proposal the independent directors took into account the results of the strategic review and formed the view that the Proposal is the only opportunity to provide an immediate, above market, cash alternative to Buru shareholders and listed optionholders. The Proposal is not an option that Buru itself would undertake having regard to the aforesaid strategic review, its current cash reserves and future ommitments and its intent to pursue, in the absence of such an offer, its previously articulated strategy.

Commenting on the assessment of the Proposal, Mr Cook said: "Buru's Canning Basin exploration strategy was put in place in August last year as part of the demerger of the Company from ARC Energy. At this time, high risk frontier exploration was appropriate with high oil prices and strong equity and debt markets.

As the Company announced in January 2009, this strategy is more difficult to successfully execute in the current environment of low oil prices and tight equity and debt markets. It is for this reason that Buru resolved to defer its previously planned 2009 drilling campaign and monitor its forward exploration program in the light of market conditions.

We have not changed our view on the geological prospectivity of the Canning Basin, but recognise that a discovery requires patience, skill and some luck and commercialising a discovery has become more challenging in the current economic environment.

The independent directors acknowledge that shareholders may have varying investment time horizons and appetites for frontier exploration risks, and that these factors are now substantially different to those when the Company's
exploration strategy was put in place. In this context the independent directors consider it appropriate shareholders and listed optionholders be given the opportunity to consider this Proposal and determine whether to receive the cash proposed or to continue with Buru's current frontier exploration strategy."

Process and Timetable

Mallesons Stephen Jaques provided legal advice to the independent directors on the Offer and will continue to provide legal advice during the course of the scheme, including in the compilation of the scheme booklet.

A scheme booklet setting out full details of the Proposal is currently being prepared to assist Buru shareholders and listed optionholders to fully understand and evaluate the Proposal. Included in the scheme booklet will be an independent expert's report, prepared by PricewaterhouseCoopers. The independent expert will report on whether the Proposal is in the best interests of Buru shareholders and listed optionholders.

If shareholders and optionholders support the Proposal it will be implemented by way of two simultaneous schemes of arrangement, one in respect of Buru shares and the other in respect of Buru listed options. The schemes require the approval of Buru shareholders and listed optionholders respectively, and the approval of the Federal Court. The schemes are cross conditional, meaning that both schemes must be approved by security holders and the Federal Court in order for the Proposal to be completed. In addition, the schemes are subject to the satisfactory fulfilment of a number of conditions customary for a transaction of this type. Buru has entered into a Scheme Implementation Agreement with Arenite in relation to the Proposal, a summary of which is set out in the Appendix to this announcement.

If supported at the meetings, it is expected that the Proposal will be completed by mid- July 2009, with the scheme booklet being sent to Buru shareholders and optionholders at the end of May and the scheme meetings being held in late June.




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