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Energy and Resources Investors scrap $2-billion takeover bid for Pacific Rubiales

An employee of the Canadian Pacific Rubiales Petroleum Company ascends an oil storage tank in Campo Rubiales field in Meta, eastern Colombia April 21, 2010.

Jose Miguel/REUTERS

A pair of investors has scrapped a $2-billion takeover offer for Pacific Rubiales Energy Corp. after facing a groundswell of opposition to the deal in a campaign led by dissident shareholders who had waged a proxy battle.

Pacific Rubiales said Mexico's Alfa SAB and private-equity-backed Harbour Energy Ltd., which had offered $6.50-a-share for the company, had withdrawn the bid they had launched in May.

In a statement, Alfa and Harbour acknowledged the sizeable opposition to their cash offer for the South American-focused and Toronto-listed company.

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"The early proxy returns suggested that a significant number of shares would be voted against our proposal," Harbour Chief Executive Linda Cook said. Ms. Cook said that the offer had been full and final.

Opposition was led by O'Hara Administration Co., whose principal is well-connected Venezuelan businessman Alejandro Betancourt Lopez. O'Hara and its mostly South American allies control 19.8 per cent of the stock and had complained that the offer undervalued Pacific Rubiales.

The group has not offered an alternative takeover proposal for the company, which is saddled with nearly $5-billion of debt at a time of falling crude oil prices.  Pacific Rubiales's managers had warned shareholders that rejecting the offer would mean the company's ability to fund future expansion would be constrained by the debt burden.

"We're pleased that the arrangement agreement was terminated," said O'Hara's Orlando Alvarado. "As one of the company's largest shareholders, we look forward to engaging with various stakeholders and playing a constructive role in the company's future."

Last week, Alfa and Harbour pushed back a planned shareholder meeting to vote on the deal, saying they wanted shareholders to have more time to consider it. The move came as O'Hara said its own tally of proxies showed the transaction was likely to be voted down.

Pacific Rubiales said it will now proceed with various initiatives to cut costs, sell assets, reduce debt and move forward with a joint venture in Mexico it had previously set up with Alfa.

The termination of the bid is likely to weigh heavily on Pacific Rubiales shares on Thursday.

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"Clearly this is disappointing for those expecting the $6.50/share acquisition price or potentially more given O'Hara Administration agitation," Nathan Piper, analyst at RBC Dominion Securities, said in a note to clients. "Tomorrow, management will restart the process of turning around a challenged business."

Mr. Piper pointed out that O'Hara and Alfa-Harbour each have stakes of nearly 20 per cent, and their long-term plans are unknown, so that will serve as an overhang on the stock. His target price is now $3 per share, down from Wednesday's close of $5.25.

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