KNOC | DANA Takeover Bid - KNOC Makes Preliminary Approach. | Hannibal

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1st Jul '10 by hannibal

847 comments 208997 reads

Hot off the press:

http://www.ft.com/cms/s/0/2bee2044-852f-11df-9c2f-00144feabdc0.html
http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=3551412
http://online.wsj.com/article/BT-CO-20100701-710080.html

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Hannibal

Premium Member

847 comments

emptyend

2nd Jul '10

Some comment here re the convertible trading post bid:

The company’s 141 million pounds of 2.9 percent convertible bonds due 2014 gained as much as 9.5 percent to 112 percent of par, according to Citigroup Inc. prices on Bloomberg, after Aberdeen, Scotland-based Dana said it had been approached. Bond investors would potentially realize an outright return of 27 percent should control change hands, according to analysts at Barclays Capital in London led by Luke Olsen.

“There’s no guarantee that an offer will either be made or accepted,” Olsen said in an interview. “However, there’s significant upside if it happens and the market is pricing in some of that.”....The price of the convertible bond indicates about a 40 percent probability of a bid taking place, Olsen said.

FWIW.

I'm not sure what that 27% figure is based on but the bid appraoch should certainly shake out those who are holding the convert from a fixed income perspective?

djpreston

2nd Jul '10

FH - wouldnt see the shareholding structure as any problem. If KNOC went public with a hostile £18 offer, in this market, they'd get their hands snapped off, no matter what TC thinks.

Without a stonking result on Ann Marie, £18 would be more than enough - Id venture £16 - £16.50 would probably do it. Open with that as a hostile then go to £18 and game over. I know Id be very happy with that, bunged a bar into DNx this morning as the nervous nellies took it back towards 1350p so Im kinda biased. :-)

nigelpm

2nd Jul '10

At £14 it does seem to be a gifthorse. Less so than at £11 of course.

Fangorn

2nd Jul '10

Wow a million in at 1350

Nice timing.

Missed it myself this morning unfortunately, albeit was looking at more modest size ....:)

djpreston

2nd Jul '10

Averaged out at 1362p so quite happy with that. More annoyed with myself for having delayed yday. Saw the 5% pop in the afternoon and thought it looked very odd given the market backdrop. Was going to move then but held off due to the tumbling US mkts.... knickers....

kenobi

2nd Jul '10

why don't they just bid ? or discuss with the management ?

the problem with this kind of statement is it just increases the price of the asset they are trying to buy.

I appreciate the price will fall back if this comes to nothing, but even so, now they're at 1400
a 1600 bid doesn't seem so exciting, where as from 1100 ish it's nearly a 50 percent premium

never mind what do I know eh ?

djpreston

2nd Jul '10

kenobi - theyd have approached TC and said something like "We'd like to chat with you with regard to the possibility of making an offer for the company". They would have had a price in mind anyway and so a move up following the disclosure doesnt really make any diference since it will always be referred to as "a premium of x% to the market price immediately before the news of our interest".

emptyend

2nd Jul '10

now they're at 1400 a 1600 bid doesn't seem so exciting, where as from 1100 ish it's nearly a 50 percent premium

....mmmm....I'm bound to say that I would find a £16 bid utterly unacceptable under all circumstances - and I would have thought that management would simply reject such an approach without further discussion. It is my view that, whilst there are certainly some/many amongst the instituions and analysts who say they would feel happy with 1650p or so, I think there will be developments that will lead them to reappraise that view. In particular, I think there are aspects of Dana's business which haven't been fully valued by the market (and am expecting to re that point addressed in the near future) and there is also the potential of Anne Marie to produce a well-timed upside surprise.

I am very definitely expecting Dana to get £19+. Anything less will be a failure of the deal-doing capabilities of management, in my view. Now is the time when Tom Cross has got an outstanding opportunity to have his deal-doing skills fully recognised by the market....and I am very much expecting to see him deliver!

emptyend

2nd Jul '10

Interesting comment here from KNOC:

"It is true we made an initial approach to the company (Dana Petroleum) but overseas media reports (that contain KNOC's offer price for Dana) are based on speculation," a KNOC official told Dow Jones Newswires by telephone.

...which begs the question: are they more likely to have been referring to the FT, where the Neil Hume on Alphaville said:

KNOC, South Korea’s national oil company, is exploring a £1.5bn offer for the FTSE 250 oil explorer Dana Petroleum as part of a foreign acquisition spree planned over the next two years.

KNOC has made preliminary contact with Dana’s management about arranging an agreed deal, according to people familiar with the situation.

Any deal would have to be friendly, and KNOC would want the existing management in place. The approach is at an early stage, and the deal could break down, these people warned.

Korean-based sources said KNOC was willing to pay a “significant premium” for Dana shares, which would typically be around 40 per cent – or £16.45 based on Dana’s closing price on Thursday.

Tom Cross, Dana’s chief executive who holds a 1.9 per cent stake in the business, would stand to make around £28,500,000 at that price.

KNOC has lined up financing from several Korean lending banks for the deal, as it prowl for foreign acquisitions as it seeks to double its daily oil production by next year.

Dana’s corporate brokers are Royal Bank of Scotland and Royal Bank of Canada. KNOC has used Bank of America-Merrill Lynch for previous foreign acquisitions.

....where you'll note that £16.45 was Hume's own translation of what was meant by "significant premium".

....or would they have been referring to The Daily Telegraph, which said:

The approach is understood to be set as high as £18 per share – a huge 50pc premium to the company's closing share price yesterday – and management is thought to look favourably on the potential deal.

....or both?????

It is my belief that the Telegraph is likely to be closer to the mark, because I simply don't think that 40% premium would be regarded as "significant" by anyone in the E&P sector - least of all Dana!

65-70% on the other hand would qualify .....and that is, I think, where the price will end up!

Soundbuy

2nd Jul '10

I am surprised this am. that little reference has been made to possible counter bids/expressions of interest from other parties in the notes from various analysts etc. as is typical in situations like this, esp. given Dana's history of specualtion and conjecture over its future independance.

Rns 14.29pm - have Blackrock just about doubled their holding?

emptyend

2nd Jul '10

I am surprised this am. that little reference has been made to possible counter bids/expressions of interest from other parties in the notes from various analysts etc. as is typical in situations like this, esp. given Dana's history of specualtion and conjecture over its future independance.

Well I've made plenty of reference to my own expectations of other bidders......but plainly "the City" (or the scribblers side thereof) don't think it likely.

I'd be amazed if there weren't others interested, especially given some of the figures being tossed around. It may well take another announcement from Dana to get them to believe it though - and I'd guess it would take a week or two for another bidder to appear (at which point Dana would simply say that they've been approached by a further party......and it will then be "game on").

The City don't appear able to recognise the difference between bid approaches made to solid well-financed companies that are undervalued and opportunistic bid approaches made to companies that are strapped for cash. The former will never succeed at a modest premium!

djpreston

2nd Jul '10

Well let's start a list then!

Previously mentioned are RWE and DNO, Centrica (LON:CNA) is an obvious one given the overlap with dnx from the vpc deal, I'd put as outsiders Taqa - they've got decent dutch and Nsea exposure and look likely to up their presence.

Of course the dnx portfolio gives a good production base in "safe" political areas and then there is the spice of the FPM option. Any successes in their high impact explo and a 30% (being approximate here ee) stake gives any buyer a clear platform.

Maybe its the rapidly approaching weekend but I'd venture on an £18 takeout, lower sighting shot then moving up to get recommendation/rivals appear.

What a nice way to end what has been an awful week or two.

emptyend

2nd Jul '10

OK ....starting list:

TAQA yes definitely - I have heard that they are looking to hit the acquisition trail again though arguably they may not fancy a fight for a chunky asset like DNX?

RWE, Centrica...yes.....and OMV (previously cited). Then there is ENI (operator at Anne Marie and in bed elsewhere), Gaz de France (various linkages). Not sure about DNO. And then there are the generic Chinese and Indians - and wild cards such as Petronas or Petrovietnam. CIECO/Itochu may be interested, given they are partners in Western Isles.

I do think KNOC is a good fit though......but it'll come down to price.

Soundbuy

2nd Jul '10

From the Evening Standard

Will a bidding war break out for Dana Petroleum?

Shares in the FTSE 250 oil explorer surged 243p to 1420p today as investors bet its new suitor could be the first of many to come knocking.

Dana has long been the subject of takeover speculation and last night, the City's gossipmongers were finally proved right when Dana admitted it had received a “very preliminary” approach. The bid, from South Korea's state-run Knoc, could value Dana at up to £1.5 billion.

Today, however, dealers said Dana is likely to attract admiring glances from elsewhere. Recent rumours have linked Austria's OMV to the group.

“I would expect other bidders such as OMV from Austria, Sinopec and RWE to come forward,” said one trader. “It's a good opportunity for Dana to diversify its assets into a global player.”

Some help here with the list :)

AnonymousUser858

3rd Jul '10

Of the many stories on this topic, the one that catches my eye is
http://topnews.co.uk/27949-dana-surging-after-knoc-news

......the state-run Korea National Oil Corp. made a prelude slant for the oil and gas exploration and Production Company based in Scotland......the shares of Dana group plunged up by 226 pence......However the KNOC group inveterate on Friday that the same is at the nascent stage of discussions....The report published in the Financial Times on Thursday that valued the possible offer of about GBP1.5 billion, entailed the group not to express its comments on. According to the spokesman from Dana on Friday the methodology had been spontaneous although everybody has a price. Commenting further on the same the analyst from the Citigroup, Mark Kofler expressed that the GBP1.5 billion would be fair enough. He also added that the offer price of GBP1.5 billion shall depict a 39% premium at the yesterday's closing and a 56% premium from Dana's share price in the starting of June where the conjecture of the full caliber offer surfaced....

Biggles

3rd Jul '10

Interestingly, a successful buyer of Dana could then access Faroes Petroleum by buying the ?2.5% of FPM shares held by Parkmead Group, giving them >30% overall.

emptyend

3rd Jul '10

Just copying over to here a post I've just made on ADVFN, which may be of interest:

EdmondJ - 3 Jul'10 - 08:20 - 11952 of 11954
What happened then to the £20+ a share, Goldman target, the other week, was this repeatedly misreported or just speculation?
Or maybe a wake-up call about the nonsense in emphasising brokers' targets in the first place...

ArtNouveau - 3 Jul'10 - 08:57 - 11953 of 11954
Hi EdmondJ,
Don't know about the Goldman £20 target recently as I don't have the note. The Goldman note I have yesterday quotes short term target during negotiations as £15.24 and £17.74 as final take out price.

I can help you with that. I have a copy of Goldman's sector note dated 11th May in which they say:

Dana remains our best Buy idea and is on our Conviction Buy List
With over 50% upside potential to our core valuation at the forward curve,
high oil price leverage, ‘free’ 2010 exploration and a potentially material
2011 exploration programme, Dana remains our top pick. We retain our
Buy rating and keep the stock on the Conviction List.....
Source of opportunity
Dana is trading at a more than 35% discount to its core assts at the
forward curve on our estimates. We believe that this level of discount is
unsustainable and that its reserves are attractive to investors looking
for leverage to the oil price. The exploration programme is also
attractive in our eyes – there is no exploration value discounted in the
shares and we believe that 2011 should see a material uptick in terms
of potential impact, with material wells likely in Guinea, Mauritania,
Senegal and Norway. Although this activity is currently too far out in
the future for the market to price in, this should roll onto an investible
time horizon in the next two quarters, further benefitting the shares. We
reiterate our Conviction Buy.
Catalyst
Dana is currently drilling at the potentially significant Bamboo prospect
and we expect results in the next few weeks. We also expect the
company to spud its Anne Marie well in the Faroes in the next month. If
both of these wells are successful, we could potentially raise our price
target by c.11%. We also believe that, if the current discount to core is
sustained for a significant period of time, the stock could become a
takeout target for a mid-cap IOC looking to buy non-strategic growth at
a relatively cheap price.
Valuation
Our 12 month SOTP-based target price of 2,106p (previously 1,684p)
uses a blend of our peak oil price and the forward curve as of May 6,
2010......
For Dana, most of the particularly high-impact wells in the potential 2011 campaign (St Louis, Mauri Block 1, Gemini, LEo, Guinea) are just
starting to fall into a 12-month time horizon, with most of the activity currently scheduled
for drilling from 2Q2011. We therefore believe that now is a good opportunity to buy the
stock, before such activity begins to get priced in.

Obviously since then several important things have happened:
a) Bamboo failed - though Lorcan came in and (IMO, once the Fin well has been completed) is likely to completely offset the risked value of Bamboo in GS's NAV
b) In the two months since the 6th May, the futures strip has come down by about $10....which will obviously impact GS's current view, using the same methodology.

Incidentally (since someone quoted the figure in The Times that appears to have been nicked from the guess in the previous day's FT!) the Telegraph repeated its £18 figure in today's paper.

The Times quote from Art in 11953 [ Today's Times states ..'However, he (Tom Cross) is believed to be seeking support from Dana’s top shareholders to hold out for as much as £20 a share from KNOC, which wants to use a $6.5 billion (£4.28 billion) war chest to treble the country’s oil reserves.' ] seems quite likely to me. The FT has also quoted the £20 target - and it is also my personal expectation having previously spoken at AGMs to both Cross and Goodall re takeover risks etc. I think that Dana will get sold this time - and at a price very close to the £20 target. Not only will the buyers be looking at the exploration acreage and drilling plans (especially in Guinea and Mauritania), but they will also have an eye to the development pipeline - which is quite significant in production terms. I also think that the results from the Fin appraisal of Lorcan - and from Anne Marie next month - will turn out to be of pivotal importance in getting £20......because IMO Anne Marie in particular will spark wider industry interest in Dana's West of Shetland portfolio.

If I were in Cross's position, I wouldn't want to finalise the price until those two wells are in ..... I'd be indicating a range of £18.50-£20.00 with the final figure dependent on the well results. And IMO that would be close enough to KNOCs numbers that a deal could be done (and still leave KNOC with upside from Cormoran and other 2011 drilling which, as Goldman indicates, is potentially significant)

ee

muckshifter

3rd Jul '10

Tournesol,
That article is so badly written that I would assume it's by a Korean. The bit about "plunging" upwards was particularly brilliant use of the english language I thought.
Regards.

flyinghorse

3rd Jul '10

My point in post #6 regarding major shareholders holding big (exposing sharholders, even with convertibles) chunks of equity is that Dana are well protected against this and cheeky/lowball bids, unlike Venture who were protected but not enough, and no white knight came along.

I wonder if the Dana timing is partly due to bp being tied up -I thought bp were in the Dana frame at some point.

Herald article on the Centrica Venture deal as a model of how to go hostile

http://www.heraldscotland.com/business/corporate-sme/deals-of-the-year-centrica-takes-out-venture-production-1.994502

"It began when Venture shareholders Aberdeen Asset Management and Schroders unexpectedly offloaded their shares to Centrica as it built up nearly a quarter of the Aberdeen company. It has never been properly explained why the investment managers decided to sell when petro-shares were still relatively depressed, but Centrica’s motives were straightforward. The Scottish Gas owner needed more UK electricity and gas production, particularly gas, where it had to rely on the wholesale markets for two-thirds of its supply. Having lost more than two million customers through price wars, it was simultaneously negotiating to buy a chunk of nuclear producer British Energy from EDF to bolster its electricity strength.

Centrica always looked likely to win Venture, despite protests from Venture chief executive Mike Wagstaff and several large founder shareholders that the £1.1bn valuation was low. Probable then became inevitable after 3i sold out in July, raising Centrica’s stake to 29.9%. The English giant could have played softly softly, but instead it launched a full £1.3bn hostile takeover that intimidated the remaining shareholders into selling out. It was all over by August, despite much more shouting and a general consensus that Centrica had won for a song. It will surely become a textbook example of how to go hostile successfully."

davjo

4th Jul '10

Just a few thoughts on the approach. I know I might be setting myself up here [I can hear ee's brain whirring into action as he reads this ;-)] but it's worthwhile to consider what's what just for the hell of it.

I've long been of the opinion that whilst most E&Ps in its peer group will be attractive to a predator of some sort at the right price, Dana is the least likely to draw interest. Why? Principally because their productive units are made up of such a large number of ragbag bits and pieces i.e. 200 odd wells from 36 different fields. A handful of fields producing the same level of hydrocarbons with far fewer wells is a much better prospect.

Clearly, KNOC are attracted. Who wouldn't be at the right price though? - and that's important when considering the possibility of third party contesting bids.

What are KNOC's motives in seeking out Dana particularly? Blowed if I know. Perhaps somebody can offer a view?

What price? A couple of points. Firstly, rumours of whatever price per share are just that, rumours, and can be taken with a pinch of salt. Secondly, any analyst takeout price objective compiled on the NPV of producing fields based on their own in-house oil futures projection can be binned imo. The prospective buyer will have their own projections and will almost certainly be less than the analysts. The very nature of the business commands conservative thinking. In any event, where is the profit for the buyer if he has to pay full NPV? Thirdly, I would not expect any buyer to pay much, if anything, for prospective resources relating to exploration in the present environment.

What about potential for counterbidders? Past history shows very few deals are contested or outbid by others. Obviously, any buyer's focus would be the North Sea. High tax regime Egypt doesn't fit unless the buyer has assets or interests there, which reduces the number of interested oilcos. A sole interest North Sea buyer isn't going to buy Dana and subsequently take on the risk of selling Egypt without getting Dana as a whole cheaper than he'd pay for the North Sea interests. Dana's producing assets are precisely the sort of stuff majors have been dumping for years, whitling down any premium sought for such assets in the market.

Summary. KNOC have failed so far in their quest of the last 2 or 3 years to gobble up some producing assets and are desperate to buy something with meaningful production. Tom Cross, reportedly keen to consider a sale, is probably delighted that this is the first time anybody's made a serious offer in the region he and the board think reasonable. This approach will either wither on the vine over price or succeed at a level rather less than the optimists imagine imo. In the event of an accepted offer, whatever the range say £15-£17, I don't see it getting beaten.

Disclaimer. I own none but will be delighted if KNOC ultimately KO Dana at £18 as it will put a big boost under the sector. Greater than that, all the better. Mr. Market however, presently thinks that's massively unlikely.

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DANA takeover bid - KNOC makes preliminary approach.

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Hannibal

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