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Talisman takeover talk

The company long thought to be for sale may finally be on the verge of getting a bid. Also, a handful of other companies that might also make appealing takeover targets, based on one analyst's interesting theory

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Jul 24, 2014

by Max Fawcett

Talisman Energy’s shares popped more than 10 per cent yesterday on reports that Spain’s Repsol has its eye on the company. Talisman has acknowledged that it has been approached by Repsol “with regards to various transactions,” and while a whole-hog acquisition is possible – Repsol has been widely rumoured to be shopping for assets, and it had US$13.4 billion in cash on its books as of its most recent quarterly filing, meaning it could buy Talisman outright in cash – FirstEnergy’s Michael Dunn isn’t buying that scenario. “A corporate acquisition of Talisman by Repsol would seem inconsistent with Repsol management’s recent statements about seeking acquisition(s) in OECD countries with growth platforms, unless the plan is to subsequently spin out most of the non-OECD assets (i.e. Asia),” he wrote. “We suspect that the Duvernay, and perhaps the Eagle Ford, are Talisman assets that Repsol has expressed interest in.” But unless Repsol is willing to attach an enormous premium on the company’s shares – and the current bid/ask spread suggests that’s not the case – Talisman shareholders (and insiders) aren’t likely to get too fat off the deal. The company’s shares were trading above $25 in 2011, after all, and scraped up against the $15 level at the end of 2012.

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And if you missed out on this takeover bump, Canaccord’s Steve Toth has a shortlist of companies you might want to consider. It’s informed by an interesting thesis: that the tax pools created by the wave of forced conversions from income trusts into corporations are starting to dry up, and that firms like Crescent Point (TSE:CPG) and Peyto Exploration (TSE:PEY) that have largely depleted their own might be willing to pay a premium for companies that still have theirs. “In our view the recent $107 million tax pool acquisition by Whitecap Resources (TSE:WCP) demonstrates the challenges dividend paying entities currently face. We believe further M&A decisions will involve tax pool interest.” Toth says that the best tax pool-rich targets out there are Advantage Oil and Gas (TSE:AAV), Terra Energy (TSE:TT), Anderson Energy (TSXV:AXL) and Pinecrest Energy (TSXV:PRY).

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