LMP chief defends plans to merge with sister firm

One shareholder is calling the merger of publicly listed L&M Petroleum (LMP) with private sister firm L&M Coal Seam Gas (LMCSG) a "con".

The deal tips control of the merged oil and gas explorer overwhelmingly towards the three private owners of LMCSG, giving them a 85.14 per cent stake in the new merged firm.

The three owners already have a 42.78 per cent stake in LMP. They would receive 444 million newly issued LMP shares in return for LMCSG's assets.

LMCSG's management team will be issued 56 million options.

Other LMP shares are owned mostly by 1960 small shareholders in Australia and New Zealand.

LMP has six petroleum exploration permits, mostly in Southland, and is exploring gas, oil and coal seam gas. LMCSG also has six permits, mostly focused on coal-seam gas exploration, including a recently announced 173 PJ 3P certified gas reserve in Southland.

Before going public in 2007, LMP was owned by Swiss company Tangent International, Hong Kong company Campania Holdings and Geoffrey Loudon, the same parties who own LMCSG and plan to reclaim a 85.14 per cent in LMP through the merger.

But one LMP shareholder from Queenstown said the value of LMCSG, which for the merger was set at almost three times LMP's value, was vastly inflated to give the three owners a bigger stake in the merged firm.

"It's a bloody con," he said.

When the shareholder bought about 150,000 LMP shares in 2007, he had thought LMP owned all previously private oil and gas assets, including those actually owned by LMCSG.

"We thought L&P [Petroleum] had the lot. They never told us there was another company that owned permits."

The shareholder would oppose the merger when it goes before shareholders for approval late next month, he said.

LMP chief executive John Bay said all shareholders were told of the relationship between LMP and LMCSG in the initial prospectus.

"He clearly didn't read the IPO prospectus," he said.

LMCG had been valued independently by Ernst and Young and was not a con, he said. The share value was based mainly on LMCSG's 3P certified gas find, announced in October soon after a potential merger was made public, he said.

He would not reveal the dollar value assigned to LMCSG but based on LMPs share price when the merger was announced in September, it is estimated to be between $62 million and $81m.

Bay said as coal seam gas developed into a more viable commodity it made sense for the firms to pool resources rather than compete.

LMP is expected to provide more details on the deal, including an expert independent report to shareholders next week.

The three parties that stand to gain shares from the deal will not be able to vote on the merger next month.

If the deal does goes ahead, the new shareholders will not be able to sell their shares until 12 months after they were issued.