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Talisman admits interest from Repsol but deal seen unlikely

Talisman’s biggest stumbling blocks – its North Sea assets – frighten potential buyers of the company, CEO Hal Kvisle says.

Talisman Energy Inc. said Spanish energy firm Repsol SA has approached it to discuss potential deals, but market players discount the chance the foreign outfit will buy the Canadian company outright.

Calgary-based Talisman, which has assets around the world and has been restructuring itself for nearly two years, on Wednesday confirmed it has attracted the attention of Repsol, following a Bloomberg report Tuesday that Repsol was exploring a bid for the Canadian company.

"Talisman acknowledges that it has been approached by Repsol with regards to various transactions," Calgary-based Talisman said in a brief statement. "There is no assurance that any transaction will be agreed."

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It said would not comment further "until such time as it is appropriate to make a public announcement on any potential transaction."

Talisman shares rose 13 per cent to $11.97 on the Toronto Stock Exchange Wednesday.

Mason Granger, a fund manager at Sentry Investments, said he doesn't think an outright takeover is in the cards. "It is fairly unanimous that nobody thinks it is a high probability" that Talisman would be sold as a whole, he said. "We kind of discounted it as not being a high probability."

Hal Kvisle, Talisman's chief executive, has been selling assets so the company can better focus on its operations in the Asia-Pacific region, North America, and Colombia. He wants to sell more assets, although Talisman has had difficulty offloading some property, such as projects in the Duvernay and the North Sea.

Michael Dunn, an analyst at FirstEnergy Capital Corp., picked apart Talisman's press release, arguing talks are not limited to an outright takeover.

"The use of the word 'various' is significant because even if Repsol has been part of [Talisman's] Duvernay [joint venture] process, it implies that Repsol has also proposed other transactions, presumably for other assets, and/or potentially a corporate takeover," Mr. Dunn wrote in a research note. Talisman, he said, has been rumoured to be trying to sell its assets in Texas's Eagle Ford play.

Takeover rumours, as well as chatter about asset sales, have swirled around Talisman for years. Its financial and operational challenges, coupled with its geographical sprawl and desire to shrink, make it a frequent target for takeover gossip.

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"I hear every day something about Talisman," one Calgary-based investment banker said. "It is just noise to me. This is moths to a bright light."

Repsol is looking for ways to spend the $5-billion (U.S.) it received following the nationalization of its assets in Argentina, according to a Bloomberg report, published late on Tuesday. The company is working with JPMorgan Chase & Co. as it evaluates a deal with Talisman, the news service said, quoting an unnamed source. Talisman currently has a market value of $12.2-billion.

Canaccord Genuity analyst Phil Skolnick said he has a target takeout price for Talisman of $14.50 (Canadian) a share.

Before Talisman shares rallied Wednesday, the stock had fallen 15 per cent this year while many of its senior Canadian producer rivals enjoyed healthy gains. The weakness has been despite the entrance last year of activist investor Carl Icahn as a large shareholder.

Initially, investors hoped Mr. Icahn would force major asset sales and other strategic moves to wring value from the company, although he and the board have worked together to try to solve the company's problems. Some investors have called for a split up between its operations in the Americas and those in Southeast Asia.

It is not known what role Mr. Icahn has played in talks between Repsol and Talisman.

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Repsol would add 370,000 barrels a day of output if it acquired Talisman, effectively doubling its production at a cost around 40 per cent of its enterprise value, assuming a bid with a 20-per-cent premium to Tuesday's closing price for Talisman, according to RBC Dominion Securities.

The Spanish company has identified the United States, Canada, Norway and other OECD countries as targets for potential deals, and Talisman spans that list, the bank said. Repsol has also expressed a desire to enter new areas, such as Asia-Pacific, RBC said. Talisman derives 28 per cent of its production from its operations in Vietnam, Malaysia and Indonesia.

Talisman reports its second-quarter results July 29.

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About the Authors
Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in mergers, acquisitions and private equity for The Globe and Mail’s Report on Business. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general topics. More

Carrie Tait joined the Globe in January, 2011, mainly reporting on energy from the Calgary bureau. Previously, she spent six years working for the National Post in both Calgary and Toronto. She has a master’s degree in journalism from the University of Western Ontario and a bachelor’s degree in political studies from the University of Saskatchewan. More

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