ExxonMobil renews proposal to acquire InterOil on the same basis as before, but with an increased contingent cap

The proposal for the Exxon acquisition of InterOil contemplated that a newly-incorporated B.C. subsidiary of ExxonMobil would acquire InterOil under a Yukon Plan of Arrangement, with the consideration for each InterOil share comprising that number of ExxonMobil shares having a fixed value of U.S.$45.00 per share, plus a cash payment of U.S.$26.87 per share (or U.S.$1.37B in total). However the cash “contingent resource payment” (or “CRP”) of U.S.$26.87 per share, was to be held under an escrow arrangement, to be repaid in full if an interim resource assessment of a Papua New Guinea natural gas project of InterOil (slated to occur in the 2nd quarter of 2017), showed a resource of less than 6.2 trillion cubic feet equivalent ("tcfe"), and with the CRP having to be repaid on a pro rata basis if the interim assessment showed a resource of between 6.2 and 10 tcfe.

Following a decision of the Yukon Court of Appeal reversing approval of the Plan of Arrangement, ExxonMobil has returned with the same offer (set out in a more detailed Circular of InterOil), except that the CRP cap occurs at 11 tcfe rather than 10 tcfe – and also secured a fairness opinion from BMO to InterOil which was paid for on a fixed fee rather than contingent basis.

The Canadian tax disclosure is essentially the same as before, and indicates that the full per share CRP consideration (now of U.S.$ $33.94 rather than U.S.$26.87 per share) - as well as, of course, the share consideration of U.S.$45 per share - will be required to be included in computing a resident InterOil shareholder’s proceeds of disposition, but (under s. 42) if the repayment obligation is triggered before the filing due-date for the shareholder’s return, the repayment would reduce those proceeds of disposition.

Neal Armstrong. Summary of InterOil Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound – Canadian Buyco.