UPDATE 3 — Aberdeen-based Faroe Petroleum on Monday urged shareholders to “take no action” in response to a £608 million hostile bid for Faroe from Norwegian oil and gas company DNO.
DNO has built up a 28.22% stake in Faroe, becoming its largest shareholder. Faroe operates in the UK North Sea and Norway’s North Sea.
DNO is offering 152p per share in cash. Faroe Petroleum shares rose about 26% to around 158p following the news, indicating a higher offer may be required.
Other big shareholders in Faroe include Black Rock Investment Management, Aviva Investors and Invesco Perpetual.
“Faroe Petroleum plc notes the announcement today by DNO of an unsolicited offer for the whole of the issued and to be issued share capital of Faroe Petroleum plc of 152p in cash per Faroe Share,” said Faroe.
“DNO did not engage with Faroe before making the announcement of its unilateral offer.
“The board of Faroe will meet together with its advisers to consider the offer and a further announcement will be made in due course.
“In the meantime, Faroe shareholders are strongly urged to take no action in relation to their Faroe shares.”
Sparebank 1 Markets analyst Teodor Sveen-Nilsen told Reuters: “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 (capital expenditure) for the company’s assets under development.
“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 10-20 percent.”
Bijan Mossavar-Rahmani, executive chairman of DNO, said: “For those shareholders who wish to exit, DNO is … offering a considerable premium.
“For those who wish to remain, there is no assurance of Faroe achieving its full value potential in a volatile commodity and financial markets environment as a relatively small scale, financially constrained UK-AIM listed company whose share price performance has remained stubbornly disappointing, with the very notable exception of short-term spikes following the sale of a particular large block of shares by one investor to another (most recently to DNO) and the attendant speculation about an impending takeover premium with each such transaction.
“We firmly believe that Faroe’s assets, the substantial part of which are Norwegian, are better placed in the bosom of DNO, Norway’s oldest independent oil and gas company, currently operating gross production of 125,000 barrels per day which compares with the 7,500 barrels of oil equivalent a day of gross production operated by Faroe.
“DNO’s proven and probable reserves were nearly four times those of Faroe’s as reported at 31 December 2017.
“Whether the offer achieves DNO’s minimum acquisition target or the acquisition of all of Faroe’s shares, we attach great importance to retaining the skills, knowledge and expertise of Faroe’s operational management and employees.
“We intend to retain Faroe’s Aberdeen head office and each of the other offices.”
DNO said in its statement: “DNO ASA … today announced the terms of an offer to be made by DNO ASA for the whole of the issued and to be issued share capital of Faroe Petroleum plc (other than the 105,247,866 Faroe Shares already held by DNO, representing 28.22 percent of Faroe’s issued share capital).
“The offer will be 152 pence in cash for each Faroe share, valuing Faroe’s existing issued and to be issued share capital at approximately £607.9 million.
“Of the offer value of approximately £443.8 million on a fully diluted basis, £402.6 million is attributable to the current issued share capital of Faroe (other than those Faroe shares already held by DNO and the Faroe Employment Benefit Trust) and the balance £41.2 million is attributable to DNO’s understanding of the number of outstanding share options and awards granted by Faroe to its directors, management and employees, representing approximately 7 percent dilution of Faroe’s current issued share capital.
“The offer price represents a premium of 44.8 percent to Faroe’s share price of 105 pence at the close of business on 3 April 2018, the last business day before DNO announced its first acquisition of shares in Faroe and a premium of 20.8 percent to Faroe’s share price of 125.8 pence at the close of business on 23 November 2018, the last business day before this announcement.”