Israel's Delek expands in North Sea with Ithaca Energy deal

By Tova Cohen and Karolin Schaps

TEL AVIV/LONDON (Reuters) - Israel's Delek Group has agreed to buy Ithaca Energy Inc in a deal valuing the North Sea oil producer's equity at $646 million and building on Delek's expansion in the North Sea ahead of a planned London listing.

The deal follows a number of transactions in the British North Sea after a rise in oil prices above $50 a barrel has given confidence to buyers and sellers to agree on valuations.

Ithaca, listed in Toronto and London, said on Monday its board had recommended the Israeli conglomerate's cash offer of C$1.95 per share, which equates to 1.20 pounds. Delek, with natural gas exploration and production activities in the eastern Mediterranean, already owns 19.7 percent of Ithaca.

However, two of Ithaca's largest shareholders, Artemis Investment Management and Cavendish Asset Management which together own around 8 percent of the stock, said the offer was too low, considering the potential of Ithaca's newest field, Greater Stella, which comes on stream later this month.

"We would like to have a chat with the management of the company to understand why they recommended a bid which we see as disappointing," Mark Niznik, co-manager of the Artemis UK Smaller Companies Fund, told Reuters.

The deal requires that holders of more than 50 percent of shares not held by Delek accept the offer.

"As things stand I would be voting against it unless something crops up in the meantime to convince me otherwise," Cavendish fund manager Paul Mumford told Reuters.

In late trade, Ithaca's London-listed shares were up 10.2 percent at 118.8 pence, after touching 121 pence, their highest since September 2014.

Delek's offer, a premium of about 12 percent to Ithaca's closing price of C$1.74 on Friday, implies an enterprise value - including debt - of about $1.24 billion.

The offer is the latest in a string of North Sea deals after last week Chrysaor, backed by private equity, said it would buy many of Shell's North Sea assets for up to $3.8 billion and EnQuest agreed to buy a 25 percent stake in BP's Magnus oil field.

Delek itself bought a 13.18 percent stake in Faroe Petroleum, another North Sea operator, for 43 million pounds ($53.7 million) in December.

Delek's bid for the 80 percent of Ithaca it does not already own is worth $524 million.

"This is a full and fair offer from a very credible buyer who have the financial resources to complete the transaction," Ithaca Chief Executive Les Thomas told Reuters.

LONDON LISTING

Delek Chief Executive Asaf Bartfeld said the deal would contribute to the company's growth and to solidifying its position in the international market.

A spokesman for Delek said the company planned to list in London during 2017 but could not say whether new shares would be sold or give further details.

In August, Delek said it was considering spinning off its holdings in the large Tamar natural gas field offshore Israel into a separate company traded abroad.

Under a deal reached with the Israeli government to boost competition in the sector, Delek has about five years to sell its 31.25 percent stake in the field.

Ithaca is a partner in 25 projects and is the operator in 12 of them, including the Stella field in the North Sea. Delek said Stella would be a big step up for Ithaca in terms of production amounts.

"This looks like a reasonable price, although Delek is clearly retaining some upside, particularly around Ithaca's 'pre development' portfolio as well as its attractive tax loss position," BMO Capital Markets analyst David Round said in a research note.

RBC Capital Markets acted as financial adviser to Ithaca's special committee set up to vet the deal, while GMP FirstEnergy is acting as the formal valuator.

(Additional reporting by Noor Zainab Hussain in Bengaluru; Editing by Adrian Croft and Mark Potter)