Dana Says KNOC Offer Undervalues Company

LONDON (Dow Jones Newswires), Sep. 8, 2010

Shares in U.K. oil and gas company Dana Petroleum held their position marginally above a hostile bid by Korea National Oil Corp. of 1800 pence a share Wednesday after Dana said KNOC's GBP1.87 billion offer significantly undervalues the company.

While analysts said the muted reaction of Dana's shares indicates the market is far from convinced by the company's arguments in favor of a higher offer price, it will still stymie KNOC's efforts to buy shares in the market and quickly take control of the U.K. firm.

At 0801 GMT shares in Dana were trading flat from Tuesday's close at 1808 pence in a broadly lower London market.

In a document released to the stock market Wednesday, Aberdeen, U.K.-based Dana cited the asset valuation of an independent expert, its own forecasts for oil production growth, details of the acquisition of two new North Sea oil fields plus exploration updates to try and convince the market of its value.

Dana said it would be fairly valued at between 2270 pence and 2465 pence a share, and that it sees "major additional upside" after taking into account the new value created from the acquisition and the expert's advice. KNOC's offer values Dana at 1800 pence per share.

Aug. 24, the Korean oil national submitted a 'no increase' statement to the U.K. Takeover Panel, which prevents it from raising its offer unless a competitive bid is launched, it obtains a recommendation from Dana's board or it becomes aware of material new information. Under the U.K. takeover code KNOC would be unable to buy shares above its offer price without raising its bid.

However, KNOC will still be able to try and gain irrevocables at its offer price. It has already secured letters of intent in support of its 1800 pence a share bid, although it remains to be seen whether investors will translate this into firm support while Dana's share price remains above this level.

According to details provided by Dana Wednesday, an independent assessment of the company, based on the average analyst forecast oil price prior to the details of the North Sea oil fields acquisition, valued the company at about 2120 pence a share.

Adding the value from an acquisition boosts the value of Dana to between 2270 pence and 2465 pence a share, Dana Chief Executive Tom Cross said on a conference call with reporters.

The 2120 price recommended by the expert represents a roughly 18% premium to KNOC's current offer, Dana added in a statement, and noted that it sees KNOC's offer as "opportunistic and inadequate."

"We are expecting a proper value discussion with KNOC," said Cross. Investors should focus on the value the new information demonstrated, Cross said, as opposed to the share price in a range of 990 pence and 1500 pence prior to KNOC's approach.

Dana Wednesday provided details of its GBP240 million acquisition of Petro-Canada U.K., a unit of Suncor Energy, which gives it access to two North Sea oil fields.

It also highlighted its belief that Dana is in a phase of "transformational growth," expecting to boost production to a pro-forma rate of approximately 70,000 barrels of oil equivalent per day, from its 2009 average rate of 38,653 barrels.

Dana said it believes that two wells it is currently drilling, Anne Marie and Cormoran, could, if successful, create considerable additional upside.

"These two prospects alone are valued at 585 pence per share unrisked, based on the independent expert's asset valuations," Dana said, but people familiar with the situation said the Suncor deal was already priced into KNOC's offer.

Analysts said the market is taking a muted view of Dana's defense. Evolution Securities, in a note to clients Wednesday, said it believed the defense document would "prove futile."

The details of the defense had largely been anticipated by the market, and investors have so far been skeptical of the value any third-party report can provide. KNOC said recently that nearly 50% of Dana's investors had indicated their readiness to accept 1800 pence for their shares.

"What are we going to take more seriously: GBP18 in cold hard cash or the views of a supposedly independent company paid for by Dana to come up with a favorable view?" one major investor said, before having seen the document.

KNOC didn't immediately comment on the Dana document.

Copyright (c) 2010 Dow Jones & Company, Inc.


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