Interactive Investor

Fortune Oil rockets on takeover bid

18th December 2014 12:34

Lee Wild from interactive investor

Fortune Oil shareholders will have mixed feelings after its major shareholder decided to buy the rest of the business. The shares had halved in value since July when the company reported a fall in profits and scrapped the dividend. Half-year profit slumped, too, so some will welcome this exit route. The optimists, however, will have been excited by the firm's prospects in China.

Given the slump in oil prices and Fortune Oil's inability to improve the share price by much, or for any length of time, this is probably a sensible offer for shareholders. Fortune Oil shares have not been above 14.5p since the early 1990s and its promise has never truly been fulfilled. Better to take the cash and find a better home for it. And there are plenty out there.

Shareholders will receive 10p per share from 57% shareholder Fortune Dynasty, a company owned by entrepreneurs Daniel Chiu and Dennis Chiu and Vitol Bermuda. They'll also be entitled to a further 5p per share in either cash or loan notes, but only if 35% of the company is sold and at an average of HK$11 within the next 12 months. Expect nothing, and any extra will be a bonus.

The deal will become effective in March 2015.

"In recent years, Fortune Oil has struggled to gain sufficient interest from investors to maintain a reasonable level of active trading in its shares," said Fortune Dynasty chairman Daniel Chiu. "This has resulted in a disappointing performance for many shareholders, including myself. Since the disposal of the natural gas business in 2013, the divergence of interests amongst Fortune Oil shareholders has become increasingly apparent.

"Together with my consortium partners in Fortune Dynasty, we believe a cash offer at a substantial premium to the current share price is the best means of resolving these divergent interests, and provide a means for all shareholders to realise value for their shares in cash."

Time to move on.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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