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Tax threat emerges in Cove Energy auction

by Paul Whitfield  |  Published March 2, 2012 at 12:40 PM
CoveEnergy_227x128.jpgCove Energy plc, an East Africa-focused exploration company, said Friday, March 2 it was seeking talks with the government of Mozambique after the African nation's minerals minister said the company's sale would incur capital gains tax.

The imposition of the previously unheralded tax could complicate plans to sell the company, whose suitors include ONGC Videsh Ltd. of India, Thailand's PTT Exploration and Production PCL, or PTTEP, and Royal Dutch Shell plc.

PTTEP a week ago trumped Shell with an indicative £1.12 billion ($1.78 billion) offer. Shell had on Feb. 22 made public a £992.4 million proposal.

Investors had pushed Cove shares beyond PTTEP's offer of 220 pence per share in expectation of further bids. That optimism fell away Friday as Cove's stock slumped to 201.5 pence, down 24.5 pence, or almost 11%. The shares had already fallen 6.6% to 226 pence on Thursday.

London-based Cove said it was seeking clarification after it was made aware "of the possibility of a tax charge which might be levied by the government of Mozambique in connection with the proposed indirect transfer of the company's 8.5% participating interest in the Rovuma Offshore Area 1 pursuant to a possible takeover of the company."

Mozambique's Mineral Resources Minister Esperanca Bias said Thursday that the government was planning to introduce new tax laws that would be applied to Cove's sale.

"We are monitoring the negotiations, and what we have said is that we are going to put in place a capital gains tax," said Bias.

Cove, which is led by chairman Michael Blaha and CEO John Craven, put itself on the block in early January after receiving expressions of interest in its stake in the Rovuma liquefied natural gas partnership off the Mozambique coast.

Royal Dutch Shell's Feb. 22 proposal equated to a price of 195 pence per share. That offer initially won the backing -- in principle -- of the target's board, but PTTEP then offered 220 pence, or 13% more. ONGC Videsh said on Tuesday that it was considering a joint bid with Indian gas distributor Gail (India) Ltd.


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Tags: auction | cove Energy | M&A | Royal Dutch

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