Repsol share price down, agrees to acquire Canada’s Talisman

Repsol SA, the biggest energy company in Spain, reached a deal to purchase oil company Talisman Energy, in an attempt to boost its oil reserves and output.

Under the agreement Repsol will acquire 100% of the Canadian company for $8.3 billion, or $8 per Talisman stock. The per-share price represents a 24% premium to the average price of Talisman for the recent three months. Repsol will also obtain the oil companys assumed debt of $4.7 billion.

The transaction was unanimously approved and recommended by the board of Talisman. The deal also marks the first big purchase of an oil company since crude prices started declining.

In 2012 Repsol lost nearly half of its oil and gas reserves due to the nationalization of Argentinas YPF. However, Repsol did receive around $5 billion as a compensation, which it had been looking to spend in order to expand its upstream operations in a region without political conflicts such as Canada.

In line with Repsols intentions to boost its presence in countries that are members of the Organisation for Economic Co-operation and Development.

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

The deal would increase Repsols crude reserves by 55% to 2 353 billion barrels and output by 76% to 680 000 barrels per day. The combination of the two companies would operate in more than 50 countries and employ more than 27 000 people. Repsol also said that the mix of asset management would create synergies of more than $200 million a year due to optimization of corporate functions and increased commercial capacity in North America.

Talismans core operations are located in Canada and the US, but the company is also established in Asia, Norway and Colombia.

The deal follows months of negotiations between the two companies, that eventually reached an agreement helped by the plunging oil prices and the negative impact they had on Talismans shares.

Repsol SA lost 2.97% on Monday and closed at €15.70 in Madrid. On Tuesday the stock dropped an additional 1.88% to trade at €15.40 at 10:25 GMT, marking a one-year decrease of 15.78%. The company is valued at €21.19 billion. According to the Financial times, the 34 analysts offering 12-month price targets for Repsol have a median target of €19.95, with a high estimate of €26.00 and a low estimate of €12.00. The median estimate represents a 27.08% increase from the last close price of €15.70.