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DNO lays siege to Faroe Petroleum

The battle for the North Sea independent is heating up
August 23, 2018

Until April, Faroe Petroleum (FPM) had little to do with DNO (Nor:DNO) beyond the oil and gas groups’ shared interest in two North Sea exploration fields. Almost five months on from DNO's minority acquisition, and the Aim 100 stalwart is readying for a fight. Last week, after DNO asked for its executive chairman, Bijan Mossavar-Rahmani, to join Faroe’s board, Faroe warned shareholders that the Oslo-headquartered group could be about to launch a takeover of the business without paying a sufficient control premium.

IC TIP: Hold at 148p

The move marked the beginning of a showdown that has been brewing for more than four months. On 4 April, the nominally Middle East-focused DNO announced the acquisition of a “long term strategic shareholding” in Faroe, as part of a strategic pivot towards the North Sea.

First came the purchase of a 15.4 per cent stake from Delek, accompanied by overtures that DNO would support Faroe management’s “growth-focused North Sea strategy”. The tone of the approach was hinted at by Faroe’s board, which said it had no discussions with DNO.

That move was followed by a tender offer, and within a week DNO’s holding stood at 28.7 per cent. As it closed in on the 30 per cent mandatory offer level, the Norwegian group issued a “no intention to bid” statement under Takeover Code rules, thereby preventing it from making an offer for six months.

DNO then went quiet, although it did appear to vote against a number of resolutions at Faroe’s annual general meeting in June. Ordinary votes to reappoint Faroe’s non-executive chairman, approve a remuneration report and give directors all powers of the company all squeaked through. Special resolutions granting directors power to allot shares for cash and buy back shares were both defeated.

Since then, the North Sea oil market has been waiting for DNO’s next move. It arrived on 16 August, when DNO used its interim results to call for the appointment to Faroe’s board of two “independent directors”, including Mr Mossavar-Rahmani.

Faroe immediately hit back, saying it intends unanimously to recommend that shareholders vote against the proposal, arguing that DNO is a competitor on the Norwegian Continental Shelf, and that the move is “wholly self-serving” and “part of an undisclosed strategy... to try and gain control of Faroe's business”.

The UK group finds three other faults with the offer: its inconsistency with the practices of Norwegian oil operators and the concept of an independent board, little detail on how it would improve corporate governance standards, and a lack of board-level representation from any of its other shareholders since a 2003 initial public offering. Faroe also says “a significant number” of its major institutional shareholders have expressed their disapproval of a board-level role for DNO or its directors.