“Don’t sell!” – Faroe tells shareholders to wait for better offer
Faroe Petroleum, a target of DNO’s hostile takeover bid of 152p a share, has once again urged shareholders not to consider DNO’s ‘opportunistic’ offer, as they’d lose an opportunity to benefit from any potential increase in the offer.
DNO yesterday said it had recently acquired more Faroe shares, leading to DNO owning 30 percent. The company on Thursday launched a mandatory cash offer at the same 152p price it had offered in November.
DNO, which launched the bid in November, had not secured sufficient acceptances by the first closing date of January 2, and has now extended the offer to January 18.
Responding to this, Faroe said it noted DNO’s “failure to secure sufficient acceptances for its Offer to be declared unconditional by the first closing date of 2 January 2019 and reiterates the Board’s position that DNO’s Offer price of 152p per share is opportunistic and substantially undervalues Faroe.“
Faroe again cited the independent valuation report on Faroe’s assets by Gaffney, Cline & Associates (“GCA”) that Faroe published on Wednesday, which implies a valuation for Faroe in the range of 186p to 225p per share. DNO has described its 152p offer as “full and fair, even generous.”
Faroe’s board also noted DNO’s offer deadline extension until 1.00pm London time on January 18, 2019, at the same Offer price of 152p per share. According to Faroe, the extension “clearly” suggests that DNO has “has every intention to pursue its unsolicited Offer despite its earlier statements raising the prospect that the Offer may lapse if sufficient acceptances were not received by the first closing date of 2 January 2019.
“DNO’s further market purchases also highlight this,” Faroe said.
Faroe’s board also said it was concerned at DNO’s “increasing attacks on Faroe’s outstanding exploration track record and its implied criticism of our technical team which boasts one of the best exploration track records on the NCS.”
“It is a particularly puzzling criticism given that Faroe would provide DNO with a high quality, full cycle and diversified North Sea asset base that stands in stark contrast to DNO’s existing business. In fact, DNO’s statement that it is “not going away” demonstrates the attractiveness of Faroe to DNO. As such, Faroe would solve DNO’s strategic challenges and shareholders should receive an appropriate premium which is not currently reflected in DNO’s Offer,” Faroe said.
The Faroe board also highlighted that in relation to the Offer timetable, and as established by the UK Takeover Code: DNO has until 27 January 2019 to improve or otherwise change its Offer, should it wish to do so; DNO has until 10 February 2019 to achieve sufficient acceptances for its Offer to become unconditional; and if the Offer at any time becomes or is declared unconditional, DNO must keep it open for acceptance for at least another 14 days.
“Shareholders are encouraged not to take any action in relation to the Offer and not to sell their shares in the market. Shareholders who sell their shares in the market or to DNO would not receive any increase in the Offer consideration should DNO revise its Offer,” Faroe said on Thursday.
According to Faroe, GCA concluded that “the value of Faroe’s oil and gas assets more reflective of current (late December 2018) market oil pricing is in the range of US$879 million – US$1,076 million.”
DNO: We’re not going away, even if the offer lapses
DNO which has previously unsuccessfully tried to add its directors to the Faroe board, and has criticized a recent assets swap deal between Faroe and Equinor, on Thursday said that even if its offer lapses, which would mean that there won’t be another offer for 12 months, DNO will work to “to safeguard DNO’s significant investment in Faroe.”
“DNO will redouble efforts to replace entrenched directors and achieve appropriate board representation for the owners of Faroe to achieve greater transparency and scrutiny; improvement of corporate governance practices; informed and proactive shareholder “say on pay” and to prevent further dilutive actions, including large, off-market options awards to the executive directors.”
“DNO’s full, fair — and in retrospect, even generous — Offer provides Faroe Shareholders with a rare opportunity to exit their relatively illiquid holdings in Faroe at an attractive price in volatile and uncertain oil and equities markets.
DNO ASA Executive Chairman Bijan Mossavar-Rahmani said: “Even if DNO’s Offer lapses or is allowed to lapse, DNO is not going away. For too long shareholders have given the Faroe board of directors a free pass. Starting with our first acquisition of shares, shareholders holding some 43 percent of Faroe’s shares have voted with their feet by seeking to exit all or part of their positions either through sales to DNO or by accepting our Offer. Whatever the outcome of this Offer process, we will make every effort, through regular communication and engagement, to encourage our fellow shareholders who remain invested to vote their shares going forward not by proxy but proactively.”
DNO has also criticized Faroe’s “hastily prepared and released CPR” with “a downgraded oil price sensitivity value based on Brent prices of $53.89 per barrel in 2019 and $62.50 per barrel in 2020, the two years critical for the production contribution from the Equinor swap.
“This again raises questions as to the wisdom of swapping out of quality growth for near-term mature production in the Equinor swap,” DNO said.
Mossavar-Rahmani said Faroe’s valuation report assessed a historic view of the company using an inflated commodity price.
“The Equinor swap, wrought on the company without consulting shareholders, is not reflected, nor has consideration been given to a range of capital and operating costs. The CPR accompanies the third exploration failure in recent weeks from a company whose chairman vaunted its exploration success in Faroe’s defence document. The market’s verdict is evident today in the share price. With public companies, it is the shareholders who ultimately decide,” he said.
Faroe Petroleum’s share price was 153.40p at 10:44am GMT.
Offshore Energy Today Staff