Shares of Alkane Energy (LSE: ALK) have jumped more than 40% today after the company received a 36p per share cash offer for the entire issued share capital of Alkane.
The proposal comes from Barbican Bidco Limited, a company controlled by Balfour Beatty Infrastructure Partners, L.P. and values Alkane at £61.4m, assuming the exercise of all outstanding options.
Under the terms of the offer, shareholders will receive 36p per share in cash, a premium of 44% to Alkane’s closing share price on the day before the announcement.
A recommended offer
Alkane’s management has recommended unanimously that shareholders accept the offer for the company, stating that:
“This Offer enables Alkane shareholders to realise value today in cash for their shares at a significant premium to the recent historical share price, which, in the board’s view, has been impacted by negative sentiment towards the energy industry and continued regulatory scrutiny.”
“We believe that the Offer is a good outcome for all Alkane stakeholders.”
35.3% of Alkane’s shareholders have already accepted the proposed offer.
However, while the offer does represent a 59.5% premium to the six-month average closing price of Alkane’s shares, it will still leave some shareholders feeling short changed.
This time last year Alkane’s shares were trading at 40p, approximately 11% below today’s offer. Over the past 12 months, Alkane’s shares have slumped 44%. So investors who bought into the company last year, buying with a long-term outlook have been dealt a raw deal.
Alkane runs ‘gas to power’ electricity plants and has onshore petroleum exploration licences, which enable the group to extract methane from old coal pits. Also, Alkane has the infrastructure in place to produce electricity at times of high electrical demand or to balance the electricity grid.
For the six months ended 30 June 2015, Alkane produced 106GWh of electricity, a record for the company. Revenue for the period increased by 23% to £8.7m and adjusted pre-tax profit jumped 166% to £1.4m for the half-year. Adjusted earnings per share increased 119% to 0.94p. City analysts were expecting Alkane to report earnings per share of 3.5p for full-year 2015.
Unfortunately, increased regulatory scrutiny and negativity towards the energy industry has weighed on Alkane’s share price over the past year. And as a result, Balfour Beatty has been able to snap up the company at a relatively low price.
Based on City earnings estimates, Balfour Beatty’s offer of 36p per share represents a forward P/E of 10.3, which could be considered to be a low-ball offer. Indeed, only 12 months ago Alkane was trading at a forward P/E of 12.2. 24 months ago the company was trading at a forward P/E of 14.3.
The bottom line
So overall, the buyout offer from Balfour Beatty does provide a quick fix for some of Alkane’s shareholders. That said, there is some evidence to suggest that the 36p per share offer undervalues the company.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.