DNO launches a hostile offer for Faroe Petroleum, shares rise

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LONDON (Reuters) – Norwegian DNO (DNO.OL) has launched an offer to purchase all the Faroe Petroleum (FPM.L) in a deal valued at about £ 607.9 million ($ 779.81 million), sending the shares of the company listed in London by a quarter.

PHOTO FILE: The word oil is depicted on an oil bank at a recycling site in London on March 2, 2011. REUTERS / Stefan Wermuth

The DNO, which already owns 28% of the Faroe Islands of Aberdeen, returned to the North Sea last year after years of expansion in the Middle East focusing on Iraqi Kurdistan, with the goal of growing through acquisitions and other investments.

The shares in Faroe increased by 25 percent to 157.4 pence by 1022 GMT, above the bid price. DNO shares increased by 3.7%.

DNO said it had offered the Faroe shareholders 152 pence per share, representing a 44.8% premium over the closing price on April 3, a day before the Norwegian company began to earn 28% of the capital.

This had led to speculating on a complete acquisition, even though DNO said he was not going to launch one.

This meant that the DNO, which produced 81,500 barrels of oil equivalent in the third quarter, had to wait at least six months to make up more than 30 percent.

In August, the DNO withdrew its request for seats on the Faroe Board of Directors, in the face of a "war escalation" between companies on the wider culture of the Faeroe governance and on the value strategies for shareholders.

Faroe CEO Graham Stewart told Reuters on September 18th that he was in constructive talks with DNO, but that Faroe preferred to remain independent.

"The Faroe Islands' shareholders are firmly urged not to take any action in relation to their Fær Øer actions," Faroe said in a statement after DNO's move, adding that he will make further announcements in due course.

The company, which plans to produce between 12,000 and 14,000 barrels per day (bpd) this year and is developing a number of promising oil prospects in Norway and Britain, said the DNO was not " engaged "with Faroe before presenting the offer.

"For the shareholders of Faroe, the agreement will guarantee access to a sound balance sheet and a strong cash flow that will eliminate all the uncertainties related to the investments (capital expenditure) for the activities of the company undergoing development, "said Sparebank analyst 1 Markets Teodor Sveen-Nilsen.

"However, at first glance, it appears that the proposed agreement represents a better deal for DNO's shareholders than Faroe shareholders." We imagine that DNO will have to raise the price of the offer by 10-20%. "

BMO Capital Markets, who advises Faroe, said in a statement that the DNO offer underestimated Faroe's assets and potential.

"We estimate the much higher shares at around 170 pence / share, although completely removed, our valuation increases to around £ 2.10 / share," said David Round of BMO.

Christian Yggeseth of Danske Bank stated that the offer is "fair" and that the turbulent stock and oil market has increased DNO's chances of success.

The shareholders of the Faroe Islands have 60 days to register from the day they receive the bid documents, which are due in two or four weeks. After DNO, Faroe's main shareholders are BlackRock, Aviva and Invesco.

Additional report by Nerijus Adomaitis, editing by Louise Heavens

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