IOC Interoil Corp. (delisted)

   By Robb M. Stewart 
 

MELBOURNE, Australia--Oil Search Ltd. (OSH.AU) has garnered support for its US$2.2 billion offer for InterOil Corp. (IOC) from a major proxy advisor, which recommended that InterOil shareholders reject a move by the energy company's founder to wrestle control of the board.

In a report published Tuesday, Institutional Shareholder Services recommended that shareholders vote in favor of InterOil's board nominees and against dissidents led by former Chief Executive and Chairman Phil Mulacek.

The recommendation, which was welcomed by New York-listed InterOil, comes as Oil Search's managing director meets this week with investors in North America to promote the deal.

The bid has been attacked by Mr. Mulacek, who said it significantly undervalued InterOil. He also criticized InterOil for unveiling the takeover just before a June 14 shareholder meeting and planned vote on his proposal to add himself and four associates to the company's board.

Mr. Mulacek, who with his company Petroleum Independent & Exploration LLC holds a share of more than 7.5% in InterOil, earlier this year accused the company's board of failing to provide effective oversight and destroying shareholder value. Mr. Mulacek, who led InterOil's exploration efforts in Papua New Guinea that led to the discovery of the promising Elk and Antelope gas fields, stepped down as CEO in April 2013.

InterOil has urged shareholders to vote against Mr. Mulacek's board nominees and rejected his claims. In a letter to investors defending the takeover, the Singapore-based company said the bid represented a 33% premium to the volume-weighted average share price over the previous three months and potentially offered a further cash payment based on the resources in the Elk-Antelope field.

ISS, which offers corporate governance advice for asset managers, hedge funds and other investors, said that while Mr. Mulacek's claims appeared to have some merits, putting the dissidents on the board could complicate the Oil Search acquisition process, which might not be in the best interest of other shareholders.

"More importantly, the dissident has not provided an alternative proposal which is seen to be superior to the acquisition of the company by Oil Search," ISS said in its analysis.

The proxy firm also said that although InterOil's share price had slumped since the departure of Mr. Mulacek as CEO, the company's total shareholder return was in line with the crude-oil price index and slightly outperformed its peer median.

Oil Search, based in the Papua New Guinea capital of Port Moresby but listed in Australia, earlier this month reached a deal to buy InterOil for US$40.25 a share. The deal also offers the potential of a further cash payment for additional natural gas that might be formally identified in a major discovery on Papua New Guinea known as Elk-Antelope that is at the heart of a proposed liquefied natural gas project being led by France's Total SA (TOT).

Oil Search in a separate deal agreed to sell some of InterOil's interests in the Elk-Antelope and other exploration efforts in Papua New Guinea to partner Total for about US$1.2 billion. That would see Oil Search's stake in Total's planned Papua LNG project rise from nearly 23% to 29% and lift Total's position to just more than 48% from 40% now.

The takeover of InterOil could potentially open the Total-led project to collaborations with Oil Search's other major asset, its 29% stake in a liquefied natural gas project operated by Exxon Mobil Corp. (XOM) that can produce 6.9 million metric tons a year.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

May 31, 2016 03:58 ET (07:58 GMT)

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