The obligatory buyout offer to TGK-8 (RTS: TGKH) minority shareholders expires on August 15, 2008. The offer was made by Lukoil-Volgogradneftepererabotka, a Lukoil subsidiary, on May 29. The buyout price stands at RUB 0.0398 (USD 0.0016) per share, exceeding the closing price of the shares on MICEX on August 13, 2008, by 2.3%. The shares should be paid for by September 16, inclusive, while shareholders are required to hand over their shares to Lukoil-Volgogradneftepererabotka by the deadline of September 1.
According to recent press reports, Lukoil-Volgogradneftepererabotka approached the Federal Service for Financial Markets with a request to consider making changes to its buyout offer to TGK-8 shareholders. Although the company would not specify what changes were to be made, it is known that they will not be related to the price: In all likelihood, the company intends to prolong the term of its buyout offer.
We recommend that TGK-8 shareholders accept the buyout offer or sell their shares on the free market on August 15, 2008. To begin with, the buyout price values the genco at USD 915 per kilowatt of installed capacity, compared to the average of USD 445 for the TGK segment. Secondly, the practice of buyout offers from gencos has shown that once the validity period of a buyout offer expires, the price of company shares tends to go down, as strategic investors are willing to pay a premium for control, which is incorporated into the buyout price. Finally, we believe that TGK-8 shares are currently overvalued.
Our target price for TGK-8 (RTS: TGKH) is USD 0.011 per share, which corresponds to a SELL recommendation.
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