The jostle for control of Faroe Petroleum (FPM) intensified, as potential acquirer DNO both upped its stake and insisted its 152p-a-share bid was fair, after the North Sea explorer-producer issued a circular urging shareholders to reject the offer.
DNO, which now owns 29.9 per cent of Faroe, published its full cash offer on 12 December, after formalising its bid a month ago, almost eight months after it started to build a stake. The Oslo-listed group believes its offer, which Faroe and most analysts have described as “opportunistic”, is both “full and fair”, and gives shareholders in its target “a rare opportunity to exit their relatively illiquid Aim-listed positions…at an attractive price in a volatile and uncertain market for oil and equities”.
For its part, Faroe says the offer premium is around half the average paid on all UK takeovers over the last decade, and represents a discount of around 45 per cent to “the average price paid recently for comparable North Sea portfolios” – as calculated on proved and probable reserves basis.
Analysts at RBC calculate that the 152p-a-share offer implies a long-term discount rate of $66 per barrel of Brent crude, some $12 above the current spot price, and at a big premium to the valuation of other North Sea players. This suggests the market is attributing some value to DNO’s approach, a fact which the potential acquirer has sought to exploit by arguing its offer should be seen in context to Faroe’s unaffected share price of 105p on 3 April, prior to the market learning of its involvement.
Faroe has rejected this assertion, arguing that DNO’s offer disguises the Iris/Hades and Agar discoveries, as well as its recently-announced asset swap with Equinor. Stepping up the tit-for-tat, DNO argues development of Faroe’s Brasse discovery has failed to meet its milestones.
Aside from warring over assets, Faroe was also forced to distance itself from a comment from chief executive Graham Stewart, who told Bloomberg he "would definitely expect" shareholders to reject the bid. Faroe said Mr Stewart’s words were “intended to express a management belief and should not be construed as a formal statement of support”.
On the other side, DNO has agitated for shareholder scepticism of Faroe’s management, reminding investors of a 15-year-old comment from Mr Stewart on the need “to be attractive (to buyers) - otherwise, where's our exit?", and its track record of value creation for directors, management and employees. Indeed, DNO reckons more than 11 per cent (or £50m) of its offer is “payable to this group in respect of various options, matching share schemes…and ordinary shares held by directors”.
It faces an uphill task to sew doubt ahead of the 2 January offer deadline. Aside from DNO, 99.9 per cent of shareholders approved this year’s remuneration report.
