January 3, 2019 / 7:10 AM / a year ago

DNO requires fewer Faroe shareholders to back bid, boosting chance of success

OSLO (Reuters) - Norwegian oil company DNO (DNO.OL) said on Thursday that it now requires only 50 percent of Faroe Petroleum FPM.L shareholders to back its takeover bid after it lifted its stake in the UK firm, boosting the chances the hostile offer will go through.

Shares in both companies jumped after DNO’s statement.

DNO had previously required the backing of 57.5 percent of Faroe shareholders. But that fell to 50 percent after DNO lifted its stake in the UK company slightly on Thursday to 30 percent, turning the bid from voluntary to mandatory and thus subject to takeover regulation that requires a lower threshold.

Faroe’s board and management again rejected DNO’s 610 million pound ($769 million) cash offer, priced at 152 pence per share, as inadequate and “opportunistic”.

A report by oil industry analysts Gaffney, Cline & Associates, released by Faroe on Wednesday, valued the Aberdeen-based company’s shares at between 186 and 225 pence, a premium of up to 48 percent on DNO’s offer price.

Sparebank 1 Markets analyst Teodor Sveen-Nilsen, however, said the recent decline in oil prices and global stock markets made it more likely shareholders would sell.

“This further raises the probability that the bid will be successful,” Sveen-Nilsen said after DNO said it only needed 50 percent shareholder backing.

Faroe’s shares jumped 4.7 percent to 152.8 pence per share by 1216 GMT, while DNO’s shares surged 7 percent to 13.9 Norwegian crowns, suggesting some investors think it won’t have to raise its offer.

Still, Cavendish Asset Management Ltd, Faroe’s 14th largest shareholder with a 1.38 percent stake according to Refinitiv Eikon data, also argued for a higher bid.

“Shareholder reactions to DNO’s initial offer already suggested that it was too low,” Cavendish fund manager Paul Mumford said in a statement.

“Moving forward, an offer of at least 200p per share would be more realistic,” he added.

DNO said that it now owns 30 percent of Faroe and also has acceptance for control of a further 13.1 percent stake from shareholders willing to sell, giving it effectively 43 percent control.

However, it still falls short of the 50 percent control now required to give it a majority shareholding and said it would extend a deadline to reach that target until Jan. 18, two days later than its previously stated deadline.

DNO’s original target of owning 57.5 percent was set to protect the firm from the dilution of its stake from a potential Faroe share issue.

Additional reporting by Simon Jessop in London; Editing by Gwladys Fouche and Susan Fenton

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