Eurasia Drilling meets UCP halfway

Kommersant found out that Russia’s largest oilfield services provider Eurasia Drilling Company (EDC) had entered into an amicable settlement agreement with a group of dissatisfied minority shareholders spearheaded by Ilya Sherbovich’s UCP Fund. EDC has agreed to increase the share repurchase price for these minority shareholders – which, according to lawyers, has put it in jeopardy of lawsuits from other investors who agreed to sell their holdings at the previous price. However, the failure to resolve the dispute could further complicate Schlumberger’s new attempt to acquire a controlling stake in EDC.
A group of minority shareholders of the oilfield services provider Eurasia Drilling Company spearheaded by Ilya Sherbovich’s UCP Fund dissatisfied with the share repurchase price offered to it and challenging it in court of the Cayman Islands has concluded an amicable agreement with EDC, informed sources told Kommersant. According to the sources, the minority shareholders accepted the amicable settlement offered by EDC and assuming a “significant premium” above the previous offer price. The litigation between EDC and the minority shareholders is terminated. UCP representatives, as well as Jacob Grapengiesser, head of the Moscow office of EDC’s another large minority shareholder East Capital Partners, declined to comment. EDC did not respond to an inquiry.
Eurasia Drilling Company, the largest oilfield service company in Russia, was based on the drilling assets of LUKOIL. Its principal shareholders include CEO Alexander Dzhaparidze (31%) and Alexander Putilov (20%), while LUKOIL President and CEO Vagit Alekperov holds approximately 3%. The company’s US GAAP revenue for 6 months of 2017 amounted to $967 million, net profit was $81.3 million.
In November 2015, the EDC management team, with the consent of most of the shareholders, decided to fully repurchase the company’s GDRs traded on the London Stock Exchange (the free float was 30.67%). The next step would be to have the EDC securities delisted from the stock exchange. The decision was made after the world’s leading oilfield services company Schlumberger failed to acquire a controlling stake in EDC, a transaction blocked by the Russian Government’s Commission on Monitoring Foreign Investment. The EDC management offered minority shareholders to pay $11.75 for each GDR purchased from them, but some of the shareholders opposed this price insisting that Schlumberger had valued the company at a much higher level of $22 per GDR. In February 2016, following unsuccessful negotiations, a group of minority shareholders jointly holding a 4.6% equity stake in EDC filed a lawsuit against the company in the court of the Cayman Islands where the company was registered. The largest dissenting minority shareholder was UCP Fund holding a 1.8% stake in EDC. The remaining minority shareholders agreed to the buyback and the company had its stock delisted.
The Kommersant sources refused to disclose the buyback price provided for by the amicable agreement. If the parties agreed on the midpoint of the range under dispute ($11.75-22 per GDR), the protesting investors may have been additionally paid about $33 million (a total of approximately $111.5 million for their stakes). Whether EDC’s former minority shareholders previously accepting the buyback offer will now be able to take advantage of this amicable agreement to challenge the price offered to them is not quite clear.
“As the company amicably settled the dispute with the group of minority shareholders by offering them more favorable terms, this probably means that the agreements with EDC’s former minority shareholders accepting the buyback offer and selling their securities at a lower price were concluded on terms that cannot be revised,” Borenius Managing Partner in Russia Andrei Gusev noted adding that the company would have hardly taken the risk otherwise. However, “one should bear in mind that the English law most likely has doctrines allowing to challenge even rock-solid transactions under a number of circumstances,” the expert said. In his view, some lawyers may try to consolidate minority shareholders to that end and may even provide them with financing to fight for a buyback price revision in English courts.
EDC does not want new problems: it has come to terms with the minority shareholders just when Schlumberger is making a second attempt to acquire the company, this time jointly with RDIF and the UAE-based Mubadala Fund. The ongoing dispute with the minorities could have thrown grit in the deal bearings. However, a number of Russian officials, including Igor Artemyev (the head of Russia’s Federal Antimonopoly Service), Sergey Donskoy (the Minister of Natural Resources and Environment) and Arkady Dvorkovich (a Deputy Prime Minister) do not conceal their skepticism about Schlumberger’s chances to obtain consent from the Commission as the company can hardly guarantee that EDC will continue operating should the US sanctions be toughened again.
Yuri Barsukov, Dmitry Kozlov
+7 (495) 510-53-06 Contact us | Join us