In the Stockwatch Energy Summery Last Night "While the above executives look for bargains in their companies' shares, insiders in one South American oil producer are looking to cash out. Gabriel de Alba's Frontera Energy Corp. (FEC), down two cents to $8.10 on 62,500 shares, has filed the circular for its previously share buyback offer, revealing that six of its top executives plan to tender virtually all of their shares. The named six -- who include CEO Orlando Cabrales, CFO Rene Burgos Diaz and vice-president of operations Ivan Arevalo -- collectively own 252,999 shares. According to the circular, they plan to tender 247,569 of them.
By way of background, Frontera announced the buyback offer last Wednesday, raising eyebrows for the generous offer price of $12 a share -- a 59-per-cent premium to its closing price. It dubbed the offer an "attractive and efficient means to return capital to shareholders." Shareholders who want that return in the form of $12 cash per share may tender to the offer from Sept. 11 to Oct. 17. Shareholders who choose not to participate -- or cannot participate, if the tendered shares are higher than Frontera's stated maximum of 3.37 million (out of 84 million outstanding) -- will still benefit by holding a greater proportional interest of the slimmed-down share count.
That is Frontera's pitch and it is sticking to it in the circular. It confirmed that it had considered other options, such as a special dividend, but ultimately decided that the generous buyback was the best option. Six high-level insiders have now decided that their best option is to take the cash. Five of them -- including the above Mr. Cabreles, Mr. Burgos Diaz and Mr. Arevalo -- are planning to tender every single one of their shares, dropping their ownership to zero. Just one of them (Victor Vega, vice-president of field development and exploration) will retain a small position of 5,430 shares after tendering most of the rest.
An intention to tender is not a guarantee that the shares will be taken up. Indeed, Frontera emphasized that "all shareholders are receiving equal treatment under the offer," presumably looking to fend off criticisms that the program is a juicy reward for management or institutional shareholders. Frontera's main institutional shareholders are Catalyst Capital and Gramercy Funds, which respectively own 34.7 million and 11.3 million shares. They too have said they plan to tender some of their shares -- exact amount unspecified -- but Frontera is insistent that they will receive no special treatment. The offer is now open and will run until Oct. 17."