LONDON (Reuters) - Britain’s Faroe Petroleum FPM.L rejected a 608 million pound hostile bid by DNO (DNO.OL) on Monday, which it said substantially undervalued the Aberdeen-based firm.
Norway’s DNO (DNO.OL) which already owns 28 percent of Faroe, returned to the North Sea last year after years of expansion in the Middle East focusing on Iraqi Kurdistan, with the aim of growing via acquisitions and other investments.
“We urge shareholders to reject DNO’s opportunistic, unsolicited and inadequate offer,” Faroe’s Non-Executive Chairman John Bentley said.
Faroe shares closed nearly 26 percent higher at 159.6 pence, above the 152 pence cash offer price, while shares in DNO rose by more than 3 percent after it made the bid public on Monday.
Paul Mumford at Cavendish Asset Management, which holds between 1 and 2 percent of Faroe, said DNO would need to offer around 2 pounds per share for its bid to succeed.
“Given the falling oil prices, DNO clearly thought it could swoop in and secure itself a bargain,” Mumford said.
Faroe, which said DNO had not engaged with it before making its offer, said that its board would write to shareholders and urged them to take no action in the meantime.
Its CEO Graham Stewart told Reuters in September that Faroe wanted to stay independent.
DNO said its offer represented a 44.8 percent premium to Faroe’s closing price on April 3, a day before it triggered bid speculation by building a stake.
“In the period between our first acquisition ... and this offer, the price of Brent crude has dropped 13 percent and oil and equity markets have entered a period of great uncertainty,” DNO Executive Chairman Bijan Mossavar-Rahmani said.
Sparebank 1 Markets analyst Teodor Sveen-Nilsen said the deal would give Faroe shareholder access to DNO’s strong cashflow, but added he expected DNO would need to increase the offer price by 10 to 20 percent.
DNO said it had made the offer to safeguard its investment because of Faroe’s refusal to grant it a seat on the board and against moves to dilute shareholdings.
In August, DNO withdrew its request for seats on Faroe’s board amid an escalating war of words over the British company’s wider governance culture and strategies.
BMO Capital Markets, which advises Faroe, said in a note that it valued Faroe’s shares much higher at around 170 pence and at around 2.10 pounds on a fully de-risked basis.
Additional reporting by Nerijus Adomaitis, Simon Jessop and Sangameswaran S, editing by Louise Heavens and Alexander Smith