Petrogrand offers to buy Shelton convertibles in takeover attempt

By Toni Weeks

San Luis Obispo, March 21 - Petrogrand AB (publ) announced a public cash offer for 170,580 series A shares, 14,892,530 series B shares, 1,400,625 series 2013/2014 convertible bonds and 320,000 warrants issued by Shelton Petroleum AB (publ), according to a press release.

Petrogrand, who owns 9% of the share capital and 8.3% of the voting rights in Shelton, said in the release that it is announcing the takeover offer without prior contact with Shelton's board of directors, believing that "this procedure to be the most appropriate way to safeguard an independent assessment and statement by the board of directors of Shelton in the best interest of all shareholders."

Petrogrand is offering SEK 18.6 for each series A or series B share, SEK 17.5 for each convertible bond and SEK 3 for each warrant. The total price for all of the securities amounts to about SEK 306 million. The company will finance the offering with available funds.

The price for the series B shares is equal to the closing share price on the Nasdaq OMX on March 20 and a 33% discount to the volume-weighted average trading price over the last 90 days prior to March 20.

The offer document will be released April 4 with the acceptance period to commence April 7 and end April 25. Settlement is scheduled for May 7.

The completion of the offer is conditional on Shelton completing independent due diligence and on Petrogrand purchasing enough shares such that it will represent more than 50% of the total number of outstanding Shelton shares.

Cooperation agreement

On June 14, 2013, Shelton entered into a cooperation agreement with Petrogrand and issued two convertible loans in an aggregate amount of SEK 215 million to the investor, who was interested in some of Shelton's assets, including those related to Russian oil licenses in Bashkiria and the Ukrainian Lelyaki fields.

The first investment under the agreement was successful. Petrogrand converted the first convertible loan in October 2013, which resulted in Petrogrand becoming Shelton's largest shareholder.

Petrogrand said it intended to convert the second convertible loan, but Shelton's board objected to this, and the cooperation agreement was ended in early 2014. The repayment of the second convertible loan was settled, and Petrogrand chose not to pursue the conversion at the time.

The investor said that it has the strong financial position and employee competence to help the realization of Shelton's license portfolio and expansion possibilities for the two companies as a combined entity. The offer would also ensure Petrogrand's continued expansion in the Russian market, particularly in the possibilities to realize the agreement with Gazprom Neft, and provide Shelton's shareholders the chance to sell their holdings at a favorable price, which Petrogrand said is not always possible in the market due to limited share liquidity.

According to the release, Petrogrand's offer represents a valuation of SEK 308 million for all series A shares and series B shares and a 17% premium to the valuation of the first convertible loan, which was SEK 243 million.

Shelton's bid

On Jan. 22, Shelton made a public offer to acquire all outstanding shares of Petrogrand, whose board recommended that shareholders do not accept Shelton's offer. Shelton has since increased the offer twice, with the Petrogrand board advising against the offer each time.

At the conclusion of Shelton's public offer on March 14, 25% of Petrogrand shareholders had accepted or had undertaken to accept Shelton's offer. Thus Petrogrand feels that its own offer represents an opportunity for owners of shares, bonds and warrants in Shelton to receive a cash payment for their holdings and for the two companies to pursue their identified synergies.

Mangold Fondkommission is acting as financial adviser to Petrogrand for the offer. Baker & McKenzie KB and Calissendorff & Co. Attorneys KB are the legal advisers.

Shelton Petroleum is a Stockholm-based company focused on exploring and developing concessions in Russia and Ukraine. Petrogrand, also based in Stockholm, is engaged in the operation of oil production through the acquisition of Russian oil companies and oil licenses.

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