EXHIBIT 99.2
(MAGELLAN PETROLEUM CORPORATION LOGO)
MAGELLAN PETROLEUM CORPORATION
10 COLUMBUS BOULEVARD
HARTFORD, CT 06105
October 18, 2005
VIA ELECTRONIC MAIL AND
FACSIMILE: +61-7-3832-6411
Mr. Rodney F. Cormie
Chairman of the Board
Magellan Petroleum Australia Limited
10th Floor
145 Eagle Street
Brisbane, Queensland, Australia 4000
Dear Rod:
RE: MAGELLAN PETROLEUM CORPORATION AND
MAGELLAN PETROLEUM AUSTRALIA LIMITED
Magellan Petroleum Corporation ("Magellan") has been thinking strategically
about its investment in its subsidiary, Magellan Petroleum Australia Limited
("MPAL"). As you know, Magellan currently has a 55.13% ownership interest in
MPAL.
We believe that the current shareholding structure of MPAL is not
necessarily in the best interests of either Magellan or MPAL shareholders. We
also believe that the existing ownership structure has not provided optimal
benefits in transparency as to pricing or market understanding of MPAL's assets
nor fostered liquidity or access to capital in either market. Based on these
beliefs, we now propose an offer to purchase (the "Offer") the shares in MPAL
that we do not already own.
Under our Offer, MPAL minority shareholders will receive seven (7) newly
issued shares of Magellan common stock -- to be issued in the form of Magellan
CDIs (CHESS Depository Interests) -- for each ten (10) shares that they hold in
MPAL. The Magellan CDIs will be listed and quoted on the Australian Stock
Exchange ("ASX").
Based on Magellan's closing share price of US$1.93 on October 17, 2005 on
the NASDAQ Capital Market and an A$/US$ exchange rate of 0.75, the Offer values
MPAL at A$84.1 million in total (including the shares currently owned by
Magellan), or A$1.80 per share. Accordingly, the proposed consideration in
aggregate for the 44.87% of MPAL's
-13-
Mr. Rodney F. Cormie
Magellan Petroleum Australia Limited
October 18, 2005
Page 2
shares which Magellan does not already own is approximately 14.7 million
Magellan shares, with an aggregate value of A$37.7 million based on Magellan's
recent share trading price.
BENEFITS TO MPAL SHAREHOLDERS
We believe that the benefits of the Offer for MPAL and its shareholders are
numerous. While retaining an interest in the underlying MPAL assets and business
prospects, MPAL shareholders will enjoy the following benefits:
- - a value premium of 28% on MPAL's volume weighted average trading price on
the ASX for the last 3 months;
- - shares in a more liquid security with significantly higher average trading
volumes;
- - potentially cheaper access to capital;
- - potential cost savings from organizational efficiencies arising from the
simplified capital structure;
- - tax roll-over relief under Australian law; and
- - full alignment of the strategies of both companies.
CONDITIONS TO THE OFFER
The Offer is conditional on Magellan acquiring not less than 90% of MPAL
shares, the receipt of Magellan shareholder approval in the United States,
receipt of any required regulatory approvals in the United States and in
Australia and certain other conditions as set out in the Annexure to this
letter.
OFFER PERIOD
To accommodate the timeframe of Magellan's required shareholders' meeting,
and other factors which will intervene, for example, the Christmas and New
Year's holidays, we intend having a minimum offer period of eight (8) weeks (the
"Offer Period").
INTENTIONS OF MAGELLAN IF THE OFFER IS SUCCESSFUL
It is our present intention, following the completion of the Offer, to
maintain the current board of directors of MPAL and to own 100% of MPAL's
shares.
Our specific intentions for the near term future of MPAL will be described
in Magellan's relevant U.S. and Australian regulatory filings. In summary we
envisage the following with respect to the continuation of the business, the
position of the employees and the protection of MPAL assets:
- - BUSINESS: We expect MPAL to continue as an oil and gas exploration and
production company in substantially the same manner as it is presently
operated.
-14-
Mr. Rodney F. Cormie
Magellan Petroleum Australia Limited
October 18, 2005
Page 3
- - BOARD OF DIRECTORS AND EXECUTIVE MANAGEMENT: We will maintain the current
board of directors. We will also seek to retain key members of the MPAL
executive management team, whose performance will continue to be reviewed
in line with current procedures. Additional members of the executive
management team will be added, as appropriate.
- - EMPLOYEES AND CONSULTANTS: We intend to continue the monitoring and review
process which is currently in place in regard to MPAL's employees and the
usage of consultancy services.
- - HEADQUARTERS: MPAL, as a wholly-owned subsidiary of Magellan, will continue
to be headquartered in Brisbane. Magellan's headquarters will continue to
be based in Hartford, Connecticut, USA.
- - COMPULSORY ACQUISITION: If the Offer is successful, we will proceed with
the compulsory acquisition of the remaining MPAL shares in accordance with
the provisions of the Corporations (2001) Act.
- - REMOVAL FROM OFFICIAL LIST: We intend to request ASX to remove MPAL from
the Official List of the ASX following successful completion of the Offer.
- - MPAL BUSINESS POLICIES AND PRACTICES: Consistent with our enhanced
ownership position, we intend to continue to review MPAL's important
business policies and practices, including corporate governance,
exploration and development efforts, capital expenditures, existing and
planned joint ventures, acquisition prospects, and investment policies,
with the aim to maximize overall shareholder return.
- - STRATEGIC INITIATIVES: We intend to continue to review strategic options in
light of the new ownership structure, in cooperation with the MPAL Board,
its executive management, and taking into account the strategic review
undertaken by MPAL's Business Development Committee.
- - CASH RESOURCES: We believe that MPAL's existing cash resources are
currently sufficient to continue its business without a major effort to
raise additional capital.
- - OTHER ACTIONS: We intend to undertake all other actions consistent with
Magellan's role and the interests of the combined companies and the
shareholders.
The statements described above reflect our current intentions only, which
may change as new information becomes available or as circumstances change.
SEC AND AUSTRALIAN REGULATORY FILINGS; ADVISERS
Further information concerning our Offer will be contained in (1) our Form
S-4 registration statement to be filed with the U.S. Securities and Exchange
Commission as soon as practicable, and (2) our Bidder's Statement which we will
serve on MPAL and lodge with the ASX and the Australian Securities and
Investments Commission as soon as practicable.
-15-
Mr. Rodney F. Cormie
Magellan Petroleum Australia Limited
October 18, 2005
Page 4
We intend to file with the Securities and Exchange Commission a
registration statement on Form S-4, which will contain a prospectus/proxy
statement in connection with the proposed Offer. The prospectus/proxy statement
will be mailed to Magellan shareholders when it is finalized. Magellan
shareholders are advised to read the prospectus/proxy statement when it becomes
available, because it will contain important information. Such prospectus/proxy
statement (when available) and other relevant documents may also be obtained,
free of charge, on the Securities and Exchange Commission's website
(http://www.sec.gov), or by request from the Company at 10 Columbus Boulevard,
Hartford, CT 06105.
TM Capital Corp. of New York, N.Y. and Baron Partners Limited of Sydney,
Australia are acting as joint financial advisers to Magellan. Watson Mangioni of
Sydney, Australia and Murtha Cullina LLP of Hartford, CT are acting as
Magellan's Australian and U.S. legal advisers.
************
The Board of Directors of Magellan believes that completion of the Offer
will lead to stronger companies which will both be better positioned to thrive
in the current competitive atmosphere and to improve overall shareholder
returns. We hope and trust that the MPAL Board of Directors and shareholders
will agree, so that, together, we can move forward successfully.
Yours sincerely,
/s/ Walter McCann
----------------------------------------
Walter McCann
Chairman of the Board of Directors
-16-
ANNEXURE
CONDITIONS OF OFFER
The Offer made by Magellan for the MPAL shares will be subject to conditions
substantially as set out below:
1. QUOTATION: both:
(a) an application for admission of the Magellan Shares in the form of
Magellan CDIs to be issued under the Offer to quotation on ASX is made
within 7 days after commencement of the Offer Period; and
(b) permission for admission of the Magellan Shares in the form of
Magellan CDIs to be issued under this Offer to quotation on ASX is
granted no later than 7 days after the expiry of the Offer Period;
2. 90% MINIMUM ACCEPTANCE: the number of MPAL Shares in which Magellan and its
Associates have a Relevant Interest at the expiry of the Offer Period is
not less than 90% of the MPAL Shares then on issue, and Magellan satisfies
any other requirements to effect compulsory acquisition of all outstanding
MPAL Shares;
3. OTHER REGULATORY APPROVALS: all other necessary approvals for the proposed
transaction are granted, given, made or obtained on an unconditional basis
and, at the end of the Offer Period, remain in full force and effect in all
respects and are not subject to any notice, intention or indication of
intention to revoke, suspend, restrict, modify or not renew those
approvals;
4. MAGELLAN SHAREHOLDER APPROVAL: all resolutions necessary to approve, effect
and implement or authorise the implementation of the Offer and the
acquisition of the MPAL shares are passed by the requisite majority of
Magellan shareholders at a general meeting of Magellan shareholders
expected to be held during January 2006;
5. U.S. REGISTRATION STATEMENT: The U.S. Registration statement is declared
effective by the SEC and Magellan receives confirmation that all Magellan
shares issued pursuant to the Offer will be registered with the SEC and
freely tradeable immediately following their issuance;
6. NO ACQUISITION OR DISPOSAL OF MATERIAL ASSET: except for any proposed
transaction publicly announced by MPAL before the announcement of the Offer
(the "Announcement Date") none of the following events occurs during the
period from the Announcement Date to the end of the Offer Period:
(a) MPAL or any controlled entity of MPAL acquires, offers to acquire or
agrees to acquire one or more companies, businesses or assets (or any
interest in one or more companies, businesses or assets) for an amount
in aggregate greater than $500,000 or makes an announcement in
relation to such an acquisition, offer or agreement; or
(b) MPAL or a controlled entity of MPAL enters into, offers to enter into
or agrees to enter into any agreement, joint venture, partnership or
commitment which would require expenditure, or the foregoing of
revenue by MPAL and/or its controlled entities of an amount which is,
in aggregate, more than $500,000, other than in
-17-
the ordinary course of business or makes an announcement in relation
to such an entry, offer or agreement;
7. S&P ASX 200 INDEX: before the end of the Offer Period, the S&P ASX 200
Index does not fall below 4,000 on any trading day;
8. NO CHANGE IN CONTROL: no person has, or is entitled to have any right to:
(a) terminate or alter any contractual relations between any person and
any MPAL group entity; or
(b) require the sale of any securities in an MPAL group entity,
as a result of the acquisition of MPAL shares by Magellan;
9. NO MATERIAL ADVERSE CHANGE: during the period commencing on the
Announcement Date and ending on the expiry of the Offer Period, no change
occurs or is announced that would reasonably be expected to affect the
capital structure, business, financial or trading position, future
profitability, condition of assets or liabilities of MPAL or a controlled
entity of MPAL in a manner which would be material in the context of MPAL's
operations as a whole;
10. NO LITIGATION: during the period commencing on the Announcement Date and
ending on the expiry of the Offer Period, no litigation or arbitration
proceedings have been or are instituted or threatened against MPAL or a
controlled entity of MPAL which are material in the context of MPAL's
operations as a whole;
11. NO REGULATORY INTERVENTION: during the period commencing on the
Announcement Date and ending on the expiry of the Offer Period, no
governmental agency or any other person takes any action to:
(a) prohibit, prevent or inhibit the acquisition of, or trading in, MPAL
shares;
(b) impose conditions on the Offer which impose unduly onerous obligations
upon Magellan or would materially affect the business or capital
structure of MPAL; or
(c) require the divestiture by Magellan of securities or assets of any
MPAL group entity;
other than an application to or a decision or order of ASIC or the
Takeovers Panel for the purpose of or in the exercise of the powers and
discretions conferred on it by the Corporations Act;
12. NO PRESCRIBED OCCURRENCES: none of the following happens during the period
commencing on the Announcement Date and ending on the expiry of the Offer
Period (each being a separate condition):
(a) the shares of MPAL or any of the controlled entities of MPAL are
converted into a larger or smaller number of shares;
(b) MPAL or a controlled entity of MPAL resolves to reduce its share
capital in any way;
(c) MPAL or a controlled entity of MPAL:
(i) enters into a buy-back agreement; or
-18-
(ii) resolves to approve the terms of a buy-back agreement under
sections 257C or 257D of the Corporations Act;
(iii) MPAL or a controlled entity of MPAL makes an issue of or grants
an option to subscribe for any securities or agrees to make such
an allotment or grant such an option;
(iv) MPAL or a controlled entity of MPAL issues or agrees to issue
convertible notes;
(v) MPAL or a controlled entity of MPAL disposes or agrees to dispose
of the whole or a substantial part of its business or property;
(vi) MPAL or a controlled entity of MPAL grants or agrees to grant an
encumbrance over the whole or a substantial part of its business
or property; or
(vii) an insolvency event occurs with respect to MPAL or a controlled
entity of MPAL; and
13. NO SELECTIVE DISCLOSURE OF INFORMATION: at all times during the period from
the Announcement Date to the end of the Offer Period, MPAL promptly (and in
any event within 2 business days) provides to Magellan a copy of all
information that is not generally available (within the meaning of the
Corporations Act) relating to MPAL or any controlled entity of MPAL or any
of their respective businesses or operations that has been provided by MPAL
or any of their respective officers, employees, advisers or agents to any
person (other than Magellan) for the purposes of soliciting, encouraging or
facilitating a proposal or offer by that person, or by any other person, in
relation to a transaction under which:
(a) any person (together with its associates) may acquire voting power of
10% or more in MPAL or any controlled entity of MPAL (whether by way
of takeover bid, compromise or arrangement under Part 5.1 of the
Corporations Act or otherwise);
(b) any person may acquire, directly or indirectly (including by way of
joint venture, dual listed company structure or otherwise), any
interest in all or a substantial part of the business or assets of
MPAL or any controlled entity of MPAL; or
(c) that person may otherwise acquire control or merge or amalgamate with
MPAL or any controlled entity of MPAL.
-19-