WHILE much of the talk surrounding Tap Oil’s attempt to merge with Arc Energy centres on the companies’ potential future, merged or otherwise, some of the history behind the bid is just as interesting.Tap and Arc had been holding discussions about a combined future since last year, and after no agreement was reached, Arc was made aware Tap would seek to take it over.In early March Tap lodged its bidding documents for Arc, a junior gas producer and 7.5 per cent participant in 2002’s first Australian oil discovery at Cliff Head, near Dongara.Since listing in 1996, Tap Oil has enjoyed outstanding success in its quest to find as many oilfields in WA’s Carnarvon Basin as possible. The company participated in the drilling of more than 20 wells last year, and the past five wells it has participated in have resulted in four confirmed oil discoveries.Arc has had more of a mixed time in the petroleum industry, and was struggling to survive as recently as the middle of last year. Without sufficient financial support for its exploration activities from its production assets, the company has relied on farming-out its asset holdings and has had to prevail upon its shareholders for support through capital raisings.While Arc derives some revenue from the sale of gas from its Dongara field, it is considered an explorer rather than a producer.The scrip bid, which asks Arc’s shareholders to accept one Tap share for every four Arc shares, is Tap’s attempt to expand its exploration portfolio beyond its confirmed area of expertise.Last week, Arc’s board unanimously rejected Tap Oil’s bid as insufficient, basing its decision on a report by the company’s in-dependent experts, PricewaterhouseCoopers. Tap’s bid was said to not fairly value Arc, given the latter’s high exposure to potential exploration success, and Arc’s shareholders would see their exposure to that potential significantly diluted.Despite the fighting language that is part of the battle for control of companies, the directors of Arc and Tap have not let the battle come between their personal relationships.Arc’s managing director, Eric Streitberg, and Tap’s technical director, Ted Jacobson, have known each other for more than 25 years, having met in the North Sea oilfields in 1975.The two have been both friends and business partners since.In the 1980s Mr Streitberg and Mr Jacobson started a petroleum consultancy business called Exploration Study Projects. ESP picked up an exploration permit in the Carnarvon Basin which, when added to other assets Mr Streitberg and Peter Lane (another geologist and Tap Oil director) had, formed the basis for setting up a company called Discovery Petroleum.Speaking to WA Business News, Mr Jacobson said Tap’s bid for Arc had not “and never will” affect his personal relationship with Mr Streitberg.“We’ve had an interesting record. We’re friends, and reasonably good friends. I can’t see that any problem we would have in business would affect our friendship,” he said.Mr Streitberg said the takeover had “absolutely not” affected his relationship with Mr Jacobson, but he declined to further discuss the issue, saying it was a difficult issue on which to comment in the circumstances.Regardless of the outcome, the door is open for Mr Streitberg and Mr Jacobson to once again work together. Tap’s Bidder’s Statement says if its takeover offer were successful, it intended to hold discussions with Mr Streitberg to determine whether he wished to be involved with Tap as a non-executive director.Tap wants at least 80 per cent of Arc so Arc’s shareholders can claim capitalgains tax rollover relief, but also, according to managing director Paul Underwood, because that figure “would be well and truly control of the company”.“We’d like to own 100 per cent of it, but sometimes that’s not always possible straight away,” Mr Underwood said.This is a difficult though seemingly not impossible desire to fulfil, given Arc’s directors hold 8.98 per cent of the company and Hardman Resources 10.37 per cent. In the event all other Arc shareholders accepted the bid, Tap would be 0.65 per cent over the line.But, and there’s nearly always a but in takeovers, Arc has one more ace up its sleeve – a 0.93 per cent shareholding held by Nick Palethorpe. Mr Palethorpe is a director of Origin Securities, ARC’s financial adviser.He has informed Arc that he intends to reject Tap’s offer in respect of all shares in which he has a relevant interest.Such action could leave Tap a heartbreakingly close 0.28 per cent short of its target.Mr Underwood said Tap had not discussed its bid with either Hardman’s management or Mr Palethorpe.“You wouldn’t expect them just to come out on day one and say they’d accept (the bid),” he said.“Obviously everyone’s looking for more money… but we don’t see it.”
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