Norway’s DNO has launched a bid to buy all of Faroe Petroleum in a deal worth around £607.9 million (US$779.81 million), sending shares in the London-listed company up by a quarter, Reuters reported on Nov. 26.
DNO, which already owns 28% of Aberdeen-based 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.
Shares in Faroe shot up 25% to 157.4 pence by 1022 GMT, above the offer price. DNO stock rose 3.7%.
DNO said it has offered Faroe shareholders 152 pence a share, representing a premium of 44.8% to the closing price on April 3, a day before the Norwegian company started to build up its 28% stake.
That had prompted speculation about a full takeover, although DNO said then it had no intention of launching one.
This meant DNO, which produced 81,500 barrels of oil equivalent in the third quarter, had to wait at least six months to build up a stake above 30%.
In August, DNO withdrew its request for seats on the board of Faroe amid an escalating war of words between the companies over Faroe’s wider governance culture and shareholder value strategies.
Faroe CEO Graham Stewart told Reuters on Sept. 18 he was in constructive talks with DNO but that Faroe preferred to stay independent.
“Faroe shareholders, are strongly urged to take no action in relation to their Faroe shares,” Faroe said in a statement after DNO’s move, adding it will make further announcements in due course.
The company, which expects to produce between 12,000 and 14,000 barrels per day this year and which is developing a number of promising oil prospects in Norway and Britain, said DNO had not “engaged” with Faroe before making the offer.
“For Faroe shareholders the deal will secure access to a strong balance sheet and strong cash flow that will remove all uncertainty around development capex for the company’s assets under development,” Sparebank 1 Markets analyst Teodor Sveen-Nilsen said.
“However, at first glance, it looks like the proposed deal represents a better deal for DNO shareholders than Faroe shareholders. We guess that DNO will need to increase the offer price by 10% to 20%.”
BMO Capital Markets, which advises Faroe, said in a note that DNO’s bid undervalued Faroe’s assets and potential.
“We value the shares much higher at around 170 pence per share, although fully de-risked, our valuation increases to around 2.10 pounds per share,” BMO’s David Round said.
Danske Bank’s Christian Yggeseth said the offer was “fair” and that turbulent stock and oil markets increased DNO’s chances of success.
Faroe shareholders have 60 days to sign up from the day they receive the offer documents, which are due in two to four weeks. After DNO, Faroe’s biggest shareholders are BlackRock, Aviva and Invesco.
($1 = 0.7795 pounds)