DNO presents takeover bid to Faroe shareholders

Oslo-listed DNO ASA is adamant in its intention to fully take over Faroe Petroleum, despite the Faroe board being against it.

DNO, which already owns 28.22 percent in Faroe Petroleum, in November said it would launch a takeover offer for all Faroe shares it didn’t already own. DNO said the offer would be 152 pence for each Faroe share, valuing Faroe’s existing issued and to be issued share capital at approximately £607.9 million ($780.5M) at the time.

Faroe at the time urged shareholders to not act upon DNO’s unsolicited offer.

“The board strongly believes that the offer is opportunistic and substantially undervalues Faroe and encourages all shareholders to take no action,” Faroe said.

DNO on Wednesday, December 12, published and said it would post an all-cash offer to the Faroe Petroleum shareholders for each Faroe share, on the same terms announced on November 26.

“This full and fair offer provides Faroe shareholders a rare opportunity to exit their relatively illiquid AIM-listed positions at an attractive price in a volatile and uncertain market for oil and equities,” said Bijan Mossavar-Rahmani, Executive Chairman of DNO. “DNO is paying a significant premium of 44.8 percent for Faroe on the basis of the unaffected share price on 3 April 2018, ahead of speculation about a possible DNO takeover,” he added. “Faroe has failed to deliver consistent shareholder returns over the last 15 years in part as a consequence of dilutive share issues, dilutive options schemes and recent growth-dilutive asset transfers.”

DNO said it was making an offer valued on a fully diluted basis at approximately £445 million ($559 million). DNO’s Offer values the fully diluted share capital of Faroe, including shares already held by DNO, at approximately £610 million ($764 million).

DNO has noted that if its offer lapses, it cannot make a new offer for another 12 months, and “there can be no assurances as to DNO’s long-term ambitions.”

The company further said it would “redouble efforts” to achieve board representation for the owners of Faroe to “ensure improvement of corporate governance practices, to ensure greater shareholder “say on pay”, to ensure greater scrutiny and proper oversight of further dilutive actions, including generous options awards to directors, and to ensure the implementation of a culture of shareholder value creation.”

To remind, DNO has earlier this year clashed with the Faroe Petroleum board after attempting to appoint two of its directors to the Faroe Petroleum board of directors.

Faroe then expressed concern with DNO intentions, advising against the DNO representation on the board due to a potential conflict of interest.

Commenting on the proposed takeover offer in November, BMO Capital Markets, which advises Faroe, said that DNO’s bid looks opportunistic coming on the back of recent weakness in commodity markets and that Faroe’s strong balance sheet and growth trajectory means it is relatively well insulated against short-term oil price moves.

BMO further said: “We value the shares much higher at ~170p/sh, although fully de-risked our valuation increases to ~£2.10/sh with ~25p/sh of exploration to come. In our view this bid is pricing in only $62/bbl on a risked basis, which undervalues Faroes’s assets and potential.”

Cantor Fitzgerald, a financial services firm, agreed DNO’s offer is an opportunistic one, given the recent oil price weakness, and that it significantly undervalues the shares.

“While DNO’s significant existing stake may make a takeover now appear ultimately inevitable, in our view investors would be ill-advised to accept what is clearly a “low-ball” offer. We maintain our BUY recommendation and 166p target price,” Cantor Fitzgerald said.