DNO Raises Faroe Bid, Calls it Final

Norwegian producer DNO has raised its bid for Faroe Petroleum to £1.60/share, up from £1.52/share, it said late January 8. It said this was its final bid, unless another company joined in a bidding war. DNO is the largest shareholder with over 30% of the company and wants to buy out all other shareholders in a cash-only deal. The bid expires at 1300 GMT January 23.

The bid values the company at about £641.7mn ($817mn) for the fully diluted share capital of Faroe, including shares already held by DNO. It said however that even the original bid represented fair value, having studied Faroe's defence documents which included an asset valuation by an independent entity, Gaffney Cline & Associates.

DNO criticised the latter for a different, higher reserves figure for Faroe's major asset, the Norwegian Oda field, which the Norwegian regulator estimated at about a third lower. That new figure came on top of series of negative news flow about the key Brasse development that cast doubt  on Faroe's "transformational growth" prospects. 

The bid is 52.4% above Faroe's share price at the close of business on April 3, 2018, the last day before DNO announced its first acquisition of shares in Faroe, and 27.2% above Faroe's share price on November 23, the last business day before the bid was made.

Of the £454mn that will change hands, about £53mn are payable to Faroe directors, management and employees in respect of various options, matching share schemes (on the basis of full vesting) and ordinary shares held by directors. The remaining £402mn is payable to the remaining Faroe shareholders (other than shares held by DNO and the Faroe Employee Benefit Trust).

DNO said shareholders holding 43.8% of Faroe's shares have voted with their feet by selling shares to DNO or with their hands by accepting the bid.

Although DNO would prefer to achieve its 50% acceptance level and acquire additional shares, DNO is nonetheless comfortable with the possibility of the bid lapsing, leaving DNO with less than a majority shareholding in Faroe. In the latter case, DNO has already stated that it will intensify its efforts to ensure that Faroe is managed for the benefit of all shareholders.

DNO CEO Bijan Mossavar-Rahmani said: "DNO does not overpay for assets. But we have listened to the market and believe it is in the interests of all parties, save perhaps for a handful of Faroe directors, to close off this process by increasing our offer price to an even more generous level and announcing a final closing date."

He said that DNO expected to "issue a request for an extraordinary general meeting of shareholders to make appropriate changes to the board in an overdue effort to introduce proper corporate governance and instill a culture of value creation for all shareholders. We fully intend to protect our already sizeable investment in Faroe and set the company on a strong growth track following a series of serious commercial setbacks."