RCS - Lekoil Nigeria Ltd - RE:LEKOIL & SAVANNAH PROPOSAL - VALUE DESTRUCTIVE

Blue EnergyAnnouncement

01/03/2022 16:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220301:nRSA2459Da&default-theme=true

RNS Number : 2459D  Lekoil Nigeria Limited  01 March 2022

 

1 March 2022

 

Lekoil Nigeria Limited

("Lekoil Nigeria")

 

RE: LEKOIL LIMITED AND SAVANNAH PROPOSAL

 

The proposal is a value destructive and blatantly self-serving attempt by the
desperate, non performing Board of Lekoil Limited to fund themselves

 

The proposal wrongly assumes that the assets of the business would be handed
on a plate to Savannah

 

Lekoil Nigeria, which owns 11.44% of the issued share capital of Lekoil
Limited will call for an Extraordinary General Meeting to consider the removal
of the entire Board of Lekoil Limited

 

Lekoil Limited's shareholders should not be deprived of the opportunity to
consider Lekoil Nigeria's offers which provide significantly greater value to
Shareholders, are of superior commercial benefit and involve no economic
dilution

 

LAGOS, Nigeria. 1 March 2022

 

Lekoil Limited (AIM:LEK) (the "Company"), announced 28 February 2022 that it
has entered into a convertible facility agreement (the "Savannah CFA"), option
agreement (the "Option Agreement") and the tripartite agreement (the
"Tripartite Agreement") with Savannah Energy Investments Limited ("Savannah"),
a wholly owned subsidiary of Savannah PLC. In so doing, the board of the
Company (the "Board") has entered into agreements without any commercial logic
and designed to deprive shareholders of the Company ("Shareholders") of the
value in their shares, transfer value from Shareholders to themselves and to
Savannah and to maintain themselves in the redundant governance positions they
occupy.

Lekoil Nigeria has since December 2020 consistently drawn the attention of
Shareholders to the bad faith and ill-intent of the current Board and certain
Shareholders determined to take over the Company (whilst disguising their real
intention with promises of corporate governance enhancements and protection of
shareholder value). The entry into the Savannah CFA, the Option Agreement and
the Tripartite Agreement leaves no doubt as to the contempt with which the
Board holds Shareholders.

While the announcement by the Company does not affect Lekoil Nigeria or its
assets, Lekoil Nigeria considers the Savannah transactions to be corrupt and
unlawful. The allotment of ordinary shares of the Company ("Ordinary Shares")
pursuant to the Savannah CFA requires prior ministerial consent under
applicable Nigerian law and can only be achieved with the express consent of
and facilitation by Lekoil Nigeria. Any allotment of Ordinary Shares under the
Savannah CFA without ministerial consent will be in contravention of Nigerian
law and the Company has not provided any indication of its intent to comply
with this requirement.

It is time for Shareholders to remove this ineffective, redundant and
disingenuous Board in its entirety.

The value destruction proposed pursuant to the terms of the Savannah CFA and
the Option Agreement is alarming

·      Under the terms of the Savannah CFA, the Company has agreed to
issue 177.1 million Ordinary Shares, the entire amount of Ordinary Shares
purportedly approved at the 2021 AGM for issuance on a non-pre-emptive basis,
at 0.5p per Ordinary Share.

o  At the same time as the Board recommends that Shareholders reject the Cash
Offer from Lekoil Nigeria of 1.9p per Ordinary Share on the grounds that it
undervalues the Ordinary Shares, it is issuing new Ordinary Shares to Savannah
at an approximate 75% discount to the price offered by Lekoil Nigeria to
Shareholders pursuant to the Cash Offer.

o  At the same time that the Board is indicating a willingness to Lekoil
Nigeria to recommend the Offers by Lekoil Nigeria if the Cash Offer is
increased to 3-4p per Ordinary Share, it has determined to issue 25.2% of the
issued share capital to a competitor of the Company at about an 87.5% discount
to what it has represented to be a recommendable price for the Ordinary
Shares.

·      Lekoil Nigeria's Share Exchange Offer offers Shareholders the
opportunity to continue in their investment on a pari passu basis without any
economic dilution of their interest or crystallisation of any losses that may
have been suffered by Shareholders. Lekoil Nigeria welcomes and encourages
Shareholders to continue in their investment by accepting the Share Exchange
Offer. Whereas, the Board of the Company and certain activist shareholders
wish to take over your Company by diluting your interest by 25.2% through the
Savannah CFA and the Tripartite Agreement. Taking into account what Lekoil
Nigeria considers to be the corrupt and unlawful nature of the Savannah
transactions, any Ordinary Shares issued to Savannah or transferred between
Shareholders after 1 March 2021 shall not be eligible for acceptance of the
Offers made by Lekoil Nigeria.

·      The Savannah CFA and the Tripartite Agreement will not be the
only dilution. The funding raised from these arrangements will provide working
capital for less than a year. Shareholders should expect at least an annual
dilution of similar or greater proportions.

The terms of the Savannah CFA are disingenuous and abusive of Shareholders

·      The Savannah CFA was signed 28 February 2022. The funding is
available for drawing down by the Company for one day, by 1 March 2022. The
funding must be repaid one day later, by 2 March 2022, unless extended at the
election of Savannah for a one year period.

·      Noting that the Company has no means of repayment, why has the
Board entered into a £885,000 funding for one day? Either the Board expects
to convert the funding into Ordinary Shares and significantly economically
dilute Shareholders or expects that Lekoil Nigeria will provide funding to
avoid the dilution.

·      Your Board has determined to use the destruction of your
shareholder value in its dispute with Lekoil Nigeria. The directors of the
Company are not fit to remain on the Board and Lekoil Nigeria will be seeking
their removal. Lekoil Nigeria will be requisitioning an extraordinary general
meeting to propose the removal of this unfit and abusive board of directors.

Under the terms of the Savannah CFA, the Company has effectively agreed a
poison pill to any offer for the Company by agreeing to repay the amount due
under the Savannah CFA immediately on a change of control of the Company

·      The Board has attempted to thwart Lekoil Nigeria's efforts to
restructure the Lekoil group through (i) the Cash Offer, which offers
Shareholders the option of liquidity at 100% premium to the trading price
immediately prior to suspension of the Ordinary Shares from Admission and 400%
of the price at which Board has agreed for Savannah to convert its loan into
Ordinary Shares, and (ii) the Share Exchange Offer, which offers Shareholders
a direct interest and more efficient structure. The change of control
provision that has been agreed constitutes a poison pill not only to Lekoil
Nigeria's offer but to an offer by any other person.

·      The introduction of a poison pill reflects poor corporate
governance (and is prohibited by the UK Takeover Code, though the Company is
not subject to the UK Takeover Code). Lekoil Nigeria believes that this poison
pill is intended to keep in office the redundant and ill-equipped directors of
the Company and allow the implementation of an agreement to deprive
Shareholders of the value of your Company.

The Board has agreed to pay US$5m in liquidated damages to Savannah in the
event that the Savannah CFA is not converted or the agreement is voided, when
the resolutions relied on to lawfully issue 177.1 million Ordinary Shares to
Savannah is the subject of an injunction application.

·      The Board shows poor judgment in agreeing to pay an amount in
liquidated damages that the Company does not have the cash resources to pay.

·      Were the Company to issue Ordinary Shares at the Conversion Price
in the Savannah CFA to settle the liquidated damages, it would dilute all
existing Shareholders to less than 27.15% of the issued share capital.

·      There is significant doubt as to the validity of the resolutions
relied on by the Board for issuance of Ordinary Shares for cash, yet the Board
has agreed a liquidated damages clause of US$5m should the agreement be
voided. Lekoil Nigeria has a strong legal opinion from leading counsel in
Cayman Islands that the shareholder resolutions relied on by the Board are
invalid. Whilst, the Company purports to have an opinion that the resolutions
are valid, it has not to date been willing to share such opinion.

·      In the event that the Cayman Island court rules that the
resolutions are invalid, Shareholders face the prospect of the Company going
into liquidation.

·      The Convertible Facility Agreement previously entered into
between the Company, Thomas Richardson and Hadron Capital has also been
amended to include a similar liquidated damages clause for US$1,125,000 should
the agreement be voided or conversion not occur.

The terms of the Option Agreement indicate that your Board does not believe in
the value of your Company

The Company has agreed to grant an option to Savannah to acquire the US$253
million inter-company loan between the Company and Mayfair Assets and Trusts
for US$1 million, notwithstanding its carrying value of US$10 million, as well
as payment of a deferred consideration of 0.5% of attributable crude oil sales
from the participating interests of 17.4% up to a cap of US$50 million.

The effect of the Option Agreement is to put at risk the Company's world class
asset, OPL 310, in consideration of a payment of US$1m and a capped deferred
consideration that does not in any way reflect the potential of the asset and
disregards the existing investment by the Company of over US$250million.

It should be noted that the Option Agreement is conditional on Shareholder
approval. Lekoil Nigeria strongly advises Shareholders to vote against the
approval of the Option Agreement at the forthcoming EGM. Notwithstanding, the
challenges experienced with respect to OPL310, the Option Agreement shows a
profound lack of judgement by the Board.

The Board continues to deceive Shareholders

·      Our Cash Offer is funded. To date, Lekoil Nigeria has acquired
and paid for 61,403,450 Ordinary Shares representing 11.44% of the issued
share capital. Lekoil Nigeria has set aside with the paying agent to the Cash
Offer, cash consideration to settle the acquisition of 200,000,000 Ordinary
Shares pursuant to the Cash Offer.

·      All Shareholders that have accepted the Cash Offer and
transferred their Ordinary Shares to Lekoil Nigeria have been paid in full
without any issues.

·      The Board alleges that institutional shareholders representing
42% have indicated their approval of the terms of the Savannah CFA, the
Amended CFA, the Option Agreement and the Tripartite Agreement. Accordingly,
Shareholders representing a majority of the Company have not been consulted on
the terms of the proposal. The only institutional Shareholder referenced in
the announcement as supportive of the Company's proposals, Allan Gray
Investments, holds approximately 9.12% of the issued shares of the Company.
Lekoil Nigeria, one of the Company's largest Shareholders and holding 11.44%
of the issued share capital, has not been consulted. The management team of
Lekoil Nigeria, representing approximately 7.61% of the issued shares have not
been consulted.

·      The Board seeks to deceive Shareholders by implying that a
majority of the Company would have approved the proposals when the 25.2%
represented by the Ordinary Shares that would be issued to Savannah pursuant
to the Savannah CFA is included, when the 25.2% shareholding arising from the
Savannah CFA is the subject of the proposals that would be approved by
Shareholders.

·      In total, it is intended that Savannah will become the holder of
exactly 200,000,000 Ordinary Shares - 177.1 million issued pursuant to the
Savannah CFA and 22.9 million acquired pursuant to the Tripartite Agreement.
It is hard not to conclude otherwise then that the arrangements between
Savannah and the Board are contrived to deprive Shareholders of the value in
the Company. The Board is deceiving Shareholders that Savannah is supporting
the Company. It is not - Savannah is attempting to take over the Company with
the support of your Board.

·      The Board in the announcement of 28 February 2022 indicates that
the "Company's major institutional investors have indicated that they are
willing to provide additional financial support to the Company to support" the
proposed restructuring. If this was true, why are the major institutional
investors not providing funding and instead allowing Savannah to take over the
Company?

·      The Company has noted that Lekoil Nigeria is using its cash
proceeds to which Shareholders may be entitled to settle the Cash Offer.
Lekoil Nigeria has been advised that companies regularly use their cash
proceeds to undertake share buy backs and provide exits to shareholders. The
Cash Offer is a common corporate action undertaken by companies to return
capital to shareholders.

·      The claim by the Company against Mr Olalekan Akinyanmi in respect
of a loan made to him is disputed by him in full. The English courts have
already ruled against the Company on a preliminary issue with a GBP85,500
costs order imposed on the Company. The current directors of the Company were
not members of the Board at the time the loans were granted and have chosen to
ignore variations to the agreement that the Company reached with Mr Akinyanmi.
The Board continue to maliciously manipulate the facts in order to present Mr
Akinyanmi in a negative light. In reality, it is this current Board through
their actions over the last 13 months that have shown total disregard for the
interests of Shareholders and a flagrant abuse of the Company's limited
resources, culminating in the diabolical and absurd agreements entered into
with Savannah.

Lekoil Nigeria proposes

·      A restructuring to remove the costs associated with the Company.
The Company's operating costs are approximately US$500,000 to US$1,000,000 and
there is no discernible benefit obtained from the ongoing existence of the
Company (and the maintenance of a redundant Board) when the oil field
operations and management are effectively and efficiently undertaken by Lekoil
Nigeria.

·      Requisition an extraordinary shareholders meeting to remove the
Board in its entirety. The proposals announced by the Company on 28 February
2022 show a disdain for Shareholders and a single-minded determination to
deprive Shareholders of the value in and potential of the Company.

·      Shareholders vote against the approval of the Option Agreement at
the forthcoming EGM of the Company convened to approve the Option Agreement.

·      Immediately commence legal action to prevent the implementation
of and to void the Savannah CFA, the Option Agreement and the Tripartite
Agreement. Lekoil Nigeria and its management team intends to take all legal
action to protect the assets of Lekoil Nigeria and protect the interests of
Shareholders including bringing claims for inducement of breach of contract
against any party that may have done so.

·      Engage the Nigerian regulators to ensure Nigerian oil and gas
assets are not appropriated in contravention of the laws of the Federal
Republic of Nigeria.

·      Continue to offer Shareholders liquidity or continuation of their
investment in the Lekoil Nigeria assets without economic dilution via the Cash
Offer and the Share Exchange Offer (further details in respect of which will
be released shortly).

 

For further information, please contact:

 

 LEKOIL Nigeria Limited

 Hamilton Esi, Corporate Communications   +234 810 642 1047
 Damilola Isafiade, Investor Relations    +234 818 007 5493

 

 Hudson Sandler (Financial PR)

 Mark Garraway                  +44 (0)7771 860938

 

-end-

 

This information is provided by Reach, the non-regulatory press release distribution service of RNS, part of the London Stock Exchange. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

Reach is a non-regulatory news service. By using this service an issuer is confirming that the information contained within this announcement is of a non-regulatory nature. Reach announcements are identified with an orange label and the word “Reach” in the source column of the News Explorer pages of London Stock Exchange’s website so that they are distinguished from the RNS UK regulatory service. Other vendors subscribing for Reach press releases may use a different method to distinguish Reach announcements from UK regulatory news.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  NRAKZGGFDMKGZZM