HOUSTON, Sept 27 (Askume) – An affiliate of Elliott Investment Management was named on Friday as the likely winner in a U.S. court auction of shares of parent company Citgo Petroleum. The acquisition gives Venezuelan state-owned Citgo an enterprise value of $7.286 billion, according to a court filing.
The US District Court for the District of Delaware is auctioning off shares of Citgo parent company PDV Holding to pay up to $21.3 billion in takeover and debt default claims against Venezuela and state-owned oil company PDVSA . A second and final round of tendering took place earlier this year, before negotiations began on terms.
People familiar with the matter said the offer involved a combination of cash and debt. The court said that thisDependent on resolution of claims by defaulting Venezuelan bondholders on the same assets .
US Court of Appeals official Robert Pincus said he selected Elliott’s Ember Energy as the winning bidder, but added that if the proposed rule preventing parallel lawsuits against bondholders fails, “the buyer will be able to comply with the proposed purchase agreement … with the option to terminate it.”
“We will prioritize operational excellence to lay a foundation for stability, strength and long-term success,” said Gregory Goff, Ember Energy’s chief executive officer, who retired as vice chairman of Marathon Petroleum in 2019 and three years ago joined EK Sam Mobil’s (XOM) .n ( NYSE:N) board of directors.
Elliott declined to comment.
The investment firm made billions in profits from stakes in refiners Marathon Petroleum (MPC.N) and Phillips 66 (PSX.N) before acquiring the seventh-largest U.S. refinery .
Citgo’s revenue last year was $2 billion, its second-best performance of the year. The company earned $385 million in the first six months of this year and ended the period with $3.8 billion in liquidity.
Elliott submitted proposals in two bidding rounds that included U.S. refinersIt bid against rivals CVR Energy (CVI.N) and miner Gold Reserve (GRZ.V) . Gold Reserve withdrew from the bidding process last week, citing delays and uncertainty in the process.
Citgo’s $7.286 billion valuation was nearly identical to the highest bid received in the first round, a result Citgo’s lawyers described as disappointing. According to court proceedings, the refining company is worth between $11 billion and $13 billion.
The proposal covers only some of the 26 claims approved by the court and makes no provisions for bondholders.
Companies that could receive cash proceeds if Elliott Partners’ offer is confirmed include Crystallex, Tidewater (TDW.N) , ConocoPhillips (COP.N) , OI Glass (OI.N) , Huntington Ingalls (HII.N) , ACL Investments, Red Tree Investments and Rusoro Mining (RML.V) .
Conditions challenged
The conditionality of Elliott’s bid increased Venezuela’s opposition to the case, as the judge had initially stated that the selected bid would be binding and final.
“This action does not represent the end of the road or the final conclusion of the process,” Citgo’s supervisory board said in a press release. “Despite the complex situation we face, we must state clearly that PDVSA still owns its U.S. subsidiary and has the legal means to protect its interests.”
Despite the court’s preference, some bondholders, including a group led by the Gramercy Distressed Opportunity Fund, are pressing claims in separate court proceedings, threatening to derail the sale, which has been delayed five times.
Earlier on Friday, Pincus informed a judge that he had ended negotiations with PDVSA’s 2020 bondholders without reaching an agreement . The bonds are secured by Citgo equity, so the dispute could affect the revenue available to creditors in the case.
Pincus did not respond to a request for comment. Thomas Larrea, a lawyer representing Venezuela’s creditors’ committee, which includes 2020 bondholders, declined to comment.
Venezuelan Oil Minister Delcy Rodriguez said this week that the auction was a “blatant theft” of Venezuelan assets and advised Russia and other countries not to hold assets in the United States or Europe.
Judge Stark plans to discuss a proposal next week to prevent bondholders from resorting to other jurisdictions and trying to “go beyond the limits set by Delaware’s creditor list.” A court hearing to approve the sale is scheduled for November 19.
Even if Stark grants the motion, the Gramercy-led group could challenge his decision in other courts.
Jose Ignacio Hernandez, a lawyer at consulting firm Aurora Macro Strategies who is closely monitoring the case, said the prospects for bondholders to litigate the matter are good.
“Resolving these disputes would extend the sales process by at least another three months, making it impossible to complete the transaction before the proposed mid-November deadline,” he said.
