Lukoil-Volgogradneftepererabotka has officially prolonged the validity period of its obligatory buyout offer to TGK-8 (RTS: TGKH) shareholders by 25 days, while cutting the term of payment for the shares to 13 days, the TGK-8 press service announced. The duration of the buyout offer has thus increased from 78 to 103 days. The offer was made on May 29, 2008. September 9 will now be the last day for accepting the bids, instead of the previous deadline of August 15. The buyout price has remained unchanged at RUB 0.0398, or USD 0.0016, per common share.
The previous report that the company had applied to the FAS for permission to consider making changes to its buyout offer to TGK-8 shareholders has now been confirmed. We recommend that TGK-8 shareholders accept the offer or sell their shares on the free market by close on September 9, 2008. To begin with, the buyout price values the genco at USD 915 per kilowatt of installed capacity, compared to the sector average of USD 445. Secondly, the practice of buyout offers to gencos has shown that once the validity period of a buyout offer expires, the price of company shares tends to go down. Strategic investors tend to pay a premium for control upon the purchase of a majority share in a company, which is then incorporated into a 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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