Directors at Edinburgh-based Capricorn Energy have struck a new merger deal with Israel's NewMed, ditching a previous agreement with Tullow Oil.

The new agreement will create a group focused on gas production in Israel and Egypt at a time when Europe is looking for non-Russian energy supplies. It will be listed in London under the NewMed name, and led by that company's chief executive Yossi Abu.

Capricorn, formerly known as Cairn Energy, agreed in early June to an all-share "merger of equals" with Tullow to create an Africa-focused production company. However, some shareholders were concerned that the £1.5 billion deal undervalued the Scottish business.

READ MORE: Capricorn considers ‘all options’ to £1.5bn deal with Tullow Oil

The NewMed merger is also an all-share transaction, but will also include payment of a $620 million special dividend to Capricorn shareholders immediately before it closes. NewMed shareholders will own just shy of 90 per cent of the enlarged group.

“The board has engaged in a robust and dynamic process to evaluate options for Capricorn and considered a broad range of external factors and market conditions," said Nicoletta Giadrossi, chairman of Capricorn.

"The Combination with NewMed and a cash special dividend represent the delivery of significant value for Capricorn shareholders. We believe this is a compelling transaction which combines near-term value realisation with ongoing participation and value creation in a world class gas company.”