Alon Gas Mulling $223 Million Merger With Tamar Petroleum

The deal aims to boost the value of thinly traded Alon stock. Both companies deny that talks are underway, but Alon shares jump

A Tamar Petroleum natural gas rig, off the coast of Haifa, December 2017.
Tomer Appelbaum

The Alon Group is weighing a merger of its Alon Gas Exploration unit with Tamar Petroleum in a deal that could be worth 800 million shekels ($223 million), sources told TheMarker.

Alon and Tamar Petroleum, both of which have stakes in the giant Tamar natural gas field, issued statements to the Tel Aviv Stock Exchange on Monday denying knowledge of any contacts apart from preliminary discussions several months ago.

But sources told TheMarker that the earlier talks were due to resume after Passover ends this week. Alon Gas shares rose 6.45% to 34.99 shekels in response to the news, while Tamar eased 0.2% to 12.38 shekels.

The deal is being led by the institutional investors that control the Alon Group. Sources said the two sides were weighing a share swap, a statutory merger or a three-way reverse merger.

Sources said a merger with Tamar Petroleum would raise the value of their holding by giving them shares in a company whose stock is much more liquid, letting them sell the shares more easily.

Alon Gas, which owns a 4% stake in the Tamar field, has a market value on the TASE of just 465 million shekels after its shares dropped 25% over the last 12 months. Based on the stock market valuation of Tamar Petroleum, the field is worth 29.5 billion shekels and Alon Gas’ stake should be valued at about 800 million even after discounting for its 100 million in debt.

Sources said Alon Gas suffers a low valuation because of its illiquid shares. In the last 90 days of TASE trading, the average daily turnover was just 34,000 shekels.

Alon Gas is the last major asset belonging to the Alon Group, the holding company once controlled by tycoon Shraga Biran. Faced with unpayable debt of 1.6 billion shekels, Alon Group was turned over to its bondholders in 2017, who proceeded to divest its assets to raise cash.

Institutions, including insurance companies Phoenix, Migdal, Harel and Menora, control 79.5% of Alon Gas through Alon Group. Most of the rest is held by the public.

The exact value of the Alon Gas shares will be decided in negotiations, the sources said, but they added that it would probably reflect the underling assessed value of the Tamar field, rather than the stock market value of the two companies. That means Alon Gas’ stake could end up worth 1 billion shekels, they said.

“The technicalities of a deal like this aren’t complicated,” said one source close to both sides, who requested anonymity. “The main question is whether the stock market valuation is the valuation that will determine the price. They could base the deal on the average stock market price over the last 30 days before the deal, but I think the two companies will opt for an outside valuation.”

Tamar Petroleum, which has a 16.75% stake in the field and a 1.1-billion-shekel market value, was created to buy the stakes in the field originally owned by Israel’s Delek Group and Houston-based Noble Energy.

Its market value has been weighed down by the 4 billion shekels in debt it is carrying from a bond issue. Since its initial public offering, its shares have fallen 15% despite the 130 million in dividends it has paid out.

The reason is that the Tamar field is experiencing tougher competition as its near monopoly in the Israeli natural gas market diminishes. It has lost contracts for gas to Energean, the Greek energy company that hopes to put its smaller Karish and Tanin fields offshore into production over the next two years.

Two weeks ago, the Tamar partners lost a big contract with the Israel Electric Corporation to the partners in the Leviathan gas field.