Faroe tells shareholders to accept £642m DNO bid

UPDATE 3 — Norwegian oil and gas company DNO on Wednesday looked set to win control of Aberdeen-based Faroe Petroleum a day after raising its hostile bid for Faroe to £641.7 million.

DNO said it now owned or had acceptances for its bid representing 52.44% of Faroe’s share capital, up from 43.8% five days ago.

DNO raised its offer to 160p a share in cash on Tuesday from a 152p bid made in November.

Faroe said on Wednesday it would recommend DNO’s improved offer to its shareholders even though “the board does not believe the final offer represents fair value.”

DNO intends to delist North Sea operator Faroe from London’s AIM stock exchange once it controls 75% of voting rights.

RBC Markets analysts said: “Having embarked on a hostile deal, DNO commenced a negative campaign which … might have undermined its own investment case, and raised questions about its ‘need’ for asset diversification.

“Assuming completion of this deal, we believe that DNO needs to get on the front foot and talk up its business case.”

Faroe said in a statement: “The board notes that upon settlement of the further share purchases the final offer will become unconditional in all respects.

Whilst the board does not believe the final offer represents fair value, the board recognises that, as set out above, the offer will be declared wholly unconditional upon settlement of the further share purchases made by DNO and DNO will therefore acquire statutory control of Faroe. 

The board considers that, following its initial investment in Faroe and in the conduct of its subsequent offer, DNO has created considerable uncertainty for minority shareholders.

“In particular, DNO has stated that, should it acquire statutory control of Faroe, it may be required  to combine DNO’s interest in its Norwegian operating subsidiary with Faroe’s Norwegian operating subsidiary. 

“DNO has also stated that, if the level of acceptances of its offer reaches 75%, it intends to take steps to delist the company which would significantly reduce the liquidity and marketability of Faroe’s shares. 

“The board also notes that DNO has indicated that it expects to make changes to the Faroe Board and the board therefore considers there to be no assurance that Faroe would continue to maintain its current corporate governance culture in line with UK corporate governance best practice.  

Accordingly, the board now recommends that, given the final offer will become wholly unconditional, shareholders should accept the final offer, as Faroe directors intend to do in respect of their own beneficial holdings. 

The board intends to work with DNO in the interim period to ensure an orderly transition of control of the company in the interests of all our stakeholders, including our shareholders and employees.

Upon the final offer becoming unconditional in all respects, it will in accordance with the UK Takeover Code, remain open for acceptance for at least 14 days from the date the final offer would otherwise have closed. 

“Accordingly, we would expect DNO to announce that upon the final offer becoming unconditional in all respects, the final offer will remain open until at least 14 days from 23 January 2019 being 6 February 2019 …”