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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About the Author

Hannibal

Premium Member

847 comments

emptyend

12th Sep '10

IMO, the market believes a counterbid is all but out of the question because of the mish-mash nature of the assets. They never were that attractive to anyone other than a unique lone buyer such as KNOC. I remain of the view that AM is irrelevant without a counter offer in prospect.

Yes I agree that AM is now irrelevant without a counteroffer.....unless (unlikely, I suspect) they are bang up to schedule and can announce testing plans in the next few days, in which can a counter may be provoked.

I must take issue with the comments about mish-mash nature of the assets ....because I think they are somewhat unfair. Yes there are a lot of fields, especially after the acquisitions - but Dana is essentially an oil-biased business focused in and around the North Sea and North Africa, with a well-rounded full-cycle portfolio of production, development and exploration opportunities. I fully accept that the asset mix won't suit everyone.....but it only takes one other bidder to produce a competitive auction.

I've no idea* who it might best suit - but I wouldn't completely rule out the possibility that someone may throw their hat into the ring, even though I can see clearly that the market price is suggesting that no-one will do so.

*Actually that isn't quite true - Dana would best suit a buyer who is looking for geographic diversification (like KNOC), because it offers an EMEA hub with meaningful production. This primarily points towards Asian buyers from resource-short countries....of which Korea isn't the only example. But it is also a pretty good fit for, say, OMV....who have worldwide operations but have nothing in Egypt or North-West Africa, and (surprisingly) have less than 2% of their reserves and production coming from North-West Europe!......

...and, incidentally, OMV have a 20% stake themselves in Anne Marie and are operators of the Tornado block......so could certainly have an inside track on what a fair price would be (as would CIECO, another partner, which is owned by ITOCHU of Japan - which is another company for whom a firmer geographic footprint in Europe may have attractions).

[ps...yes I know I said elsewhere there was no point in speculating - but davjo's comments prompted me to have a look at fit with a couple of the obvious candidates....;-)]

sirlurkalot

12th Sep '10

I don't know much about LTIP's. ee's the local expert on them!

At about 1785-1787 the SP seems locked on to the trajectory towards acceptance. If the market saw any hope of a counter bid or likelihood of independence being preferable to KNOC then the SP would be up away from the locked on level. Being pragmatic, I think that if any corporate finance house anywhere in the City were in the advanced stages of working on a counter bid, there'd be enough leakage of that for the SP to show some life and for the odd mention in the gossip/tip columns of the business sections.

emptyend

12th Sep '10

Being pragmatic, I think that if any corporate finance house anywhere in the City were in the advanced stages of working on a counter bid, there'd be enough leakage of that for the SP to show some life and for the odd mention in the gossip/tip columns of the business sections.

Yes - one would certainly think so.

OTOH an away weekend in Aberdeen for a company that already has links with Dana could easily pass without much attention. If there is to be a counter, then I would certainly expect it to be on a friendly basis - and not to be particularly driven by the City. Deals are done in the sector often with de minimus involvement from advisors (eg Soco's recent sale to Salamander).

We should soon see, either way.

ps....the LTIP is a red herring at this point.

davjo

12th Sep '10

I must take issue with the comments about mish-mash nature of the assets ....because I think they are somewhat unfair.

By mish-mash, I meant the assets represented a large number of relatively low netback/small producing interests of the sort large oilcos have been actively selling for years and hence aren't interested in. Note Suncor sold all their small N Sea stuff but retained their 30% in Buzzard. That oilfield is precisely the type of asset that attracts bigoil, equivalent to all of the 60 odd field interests on Dana's books in terms of production without the extra costs, hassle and complexities of considerable widespread abandonment liabilities.

ps....the LTIP is a red herring at this point.

OK, so red for now, maybe turning pink over the next few days but definitely a point of issue in say a week's time if a counter offer isn't forthcoming? ;-)

marben100

13th Sep '10

Hi Davjo,

I tend to agree with the "mish-mash" comment... however that is from the perspective of a major.

As far as this bid is concerned it does seem highly likely that we're near the end. I have considerable sympathy with tournesol and ee (and to a lesser extent with TC, as he has been handsomely rewarded already). The reason is that as events unfold, KNOC's move seems to me increasingly shrewd (and somewhat unique).

As you say, many of the NS assets are sub-scale - apart from the WID, where Dana has a 65% interest. If Dana were to remain an independent, I guess there is a fair chance that that too may have been farmed down. Now, however, KNOC can keep that highly material share.

The strategic point, however, is that Dana & its operational/explo team provides an ideal entry to the North Sea for a new player like KNOC. Even more ironic is that Dana's PetroCanada NL acquisition seriously beefs up that team, adding a 165 strong workforce based in The Hague.

Whilst the majors see the NS as a depreciating asset, KNOC, along with several smaller independents, see that there is considerable life in the old dog yet. Moreover, the majors' (and, even more so, the City's) lack of interest means that NS assets can be picked up at reasonable prices, if like ee, tournesol and KNOC you are bullish on future oil prices. Sadly, there are few other entities in KNOC's position so it appears that a true competitive process has not been possible - especially with the time-pressure on KNOC's management to do a deal, as noted by ee.

Having established a strong NS platform, KNOC can now proceed to seriously build production and reserves by picking up other assets, as well as by exploring, appraising & developing those licences it has acquired. It may well be able to do deals and/or asset swaps to increase the materiality of some of Dana's current assets. TC has done KNOC a huge favour by almost overnight doubling Dana's production with the two recent deals. Recent discoveries by smaller, relatively cash-poor companies like Faroe Petroleum Plc (LON:FPM) and Encore Oil (LON:EO.) mean that there are even more juicy assets up for grabs now, by cash-rich entities like KNOC, once an NS base has been established.

From the UK POV, the one positive I see in all of this is that KNOC's investment is likely to provide a degree of economic boost through their future expenditure on oilfield services (how much of that ends up with UK companies remains an open question, however) and through enhanced tax revenues. The relative lack of financial constraints will surely mean that they'll be able to proceed more rapidly with field development than a relatively small private entity like Dana, which has to watch every penny.

Regards,

Mark

sirlurkalot

13th Sep '10

With Dana, and it's 30% of Faroe, as good as in KNOC's hands, doesn't that make Faroe the prime bid candidate in the UK-quoted sector? KNOC has no shortage of capital to develop Faroe's prospects. I bet Graham Stewart's p'd off that his independence looks finite. I give Faroe less than a year to remain quoted. All that remains is to guess the takeover price. A nice investment, particularly for those who believe AM will be successful.

ee correctly describes Soco's large shares of nowhere-near-exhaustion assets as "strategic". Looking with the same perspective, wouldn't it be fair to think of davjo's "mishmash" as meaning Dana's assets are "non-strategic"? KNOC would quite like the management team currently managing a hub of N Sea assets, but most other companies large enough to do corporate acquisitions either have withdrawn from the N Sea or already have a management team there, so would they want to buy Dana's management infrastructure? Perhaps the only rival bidder might be another Asian national oil company, but is a NOC v NOC bid battle credible?

emptyend

13th Sep '10

With Dana, and it's 30% of Faroe, as good as in KNOC's hands, doesn't that make Faroe the prime bid candidate in the UK-quoted sector? KNOC has no shortage of capital to develop Faroe's prospects. I bet Graham Stewart's p'd off that his independence looks finite. I give Faroe less than a year to remain quoted.

In theory it does. However, whilst Stewart clearly anticipates an "interesting" time according to his Oilbarrel presentation last week, he was quite clear (for some reason) when I spoke to him that he doesn't expect KNOC to bid for FPM. Nevertheless - certainly a situation to watch.

ee correctly describes Soco's large shares of nowhere-near-exhaustion assets as "strategic". Looking with the same perspective, wouldn't it be fair to think of davjo's "mishmash" as meaning Dana's assets are "non-strategic"?

Not really, IMO. Individually of course they aren't of huge size, but as a portfolio that has a reasonably tight geographic focus they would have strategic value to companies looking to "fill in the blanks" geographically - and as I pointed out at the weekend, this could include companies like OMV or Itochu as well as various Asian NOCs.

Perhaps the only rival bidder might be another Asian national oil company, but is a NOC v NOC bid battle credible?

I'd say there is zero chance of a hostile to hostile battle....but I could certainly conceive of one of the companies noted above (or another NOC) coming to a friendly deal and bidding with management support.....

....though, as we all know, time is running out extremely quickly for such a move!

ps...Dana has 27.5% not 30% (not that it would make much difference)

AnonymousUser858

13th Sep '10

Re the possibility of KNOC moving its attention to Faroe, Parkmead (PMG) owns about 3% of Faroe. It's worth remembering that Tom Cross and his wife own about 30% of PMG between them. Furthermore the chairman of PMG is Colin Goodall - currently chairman of Dana.

Something tells me that in the event of a hostile bid by KNOC for Faroe, PMG is unlikely to side with KNOC.

sirlurkalot

13th Sep '10

The alternative to Faroe being taken over would be for KNOC to be a ready buyer for Faroe's stakes in undeveloped discoveries, which might suit Faroe and KNOC perfectly well in their different ways. Faroe has a steady stream of %shares of discoveries it would like to recycle into capital.

Well yes but Parkmead only has 3% of Faroe, and there's ~70% free float out there of which KNOC would only need ~23%. Parkmead's 3% is too small to matter.

emptyend

14th Sep '10

Evening Standard comment last night:

TRADER TALK

American investment house P Schoenfeld has made a last minute bet that the battle to take over Scottish oil group Dana has further to run. The firm — owned by former Schroders manager Peter Schoenfeld — bought 3.05 million shares, or 3.3% of the company valuing its stake at £55 million the day Dana said an 1800 per share offer undervalued its potential. But KNOC has since said it will not raise its offer. Dana has said it believes it is worth nearer 2500p per share. With advisers to the Korean firm saying the majority of Dana's shareholders are willing to take the present offer Schoenfeld might have acted in haste. His firm specialises in making money from mergers as well as corporate restructuring and spin-offs. Then again with a firm offer on the table maybe the firm is happy with a small return if the Korean company does stick to its guns and no rival suitor emerges.

FWIW

fuiseog

14th Sep '10

KNOC, KNOC

TC: Who’s there?

Mid to large oilco with strong SP and good prospects.

TC: What can we do for you?

We’re interested in the Company. It would have to be a paper deal I’m afraid, we want to conserve our cash because we have such great development opportunities ahead. And we don’t feel we can go better than £19.50. We could justify sweetening that a little if AM comes in.

TC: You’re twisting my arm here, but come in, there’s no harm in having a wee chat

--------------------------
Pure fantasy of course, but one never knows……this ball is still in play.

emptyend

14th Sep '10

I'm expecting to see another rap over the knuckles for KNOC shortly. Apparently there is an article in the Korea Times which claims:

The Korea National Oil Corporations (KNOC) bid for Dana Petroleum has gained the support of shareholders who account for over 50 percent of the British oil firms stocks, an official said Monday.

Passing the 50-percent threshold is expected to boost KNOCs efforts to take Dana private through a tender offer, company officials said with a hint of caution.

The figure is easily over 50 percent. We are comfortably progressing with the takeover bid, said a KNOC official, though he wouldnt disclose the exact number.

....though nobody seems to have mentioned that to the LSE....and there has been no comment whatsoever about any binding commitments or acceptances!

sirlurkalot

14th Sep '10

ee,

No doubt there's plenty of Dana and KNOC going around to institutions offices to present why the institution should go their way. At the end of the hour the institution says what it's thinking of doing, and some KNOC functionary keeps the score as verbally told to them informally. Isn't that likely to be the basis on which KNOC think they're over 50%, though binding commitments have not yet been received, to be RNSed?

emptyend

14th Sep '10

some KNOC functionary keeps the score as verbally told to them informally. Isn't that likely to be the basis on which KNOC think they're over 50%, though binding commitments have not yet been received, to be RNSed?

Oh yes I'd think that is highly likely.

However, the comments made in the article appear to be in breach of various aspects of Rule 19 of the Takeover Code, including 19.3 which says (inter alia):

Parties to an offer and their advisers must take care not to make statements which, while not factually inaccurate, may be misleading or may create uncertainty.

....though claiming that they have "easily over 50%" would also be inaccurate as well as misleading if all they have is more kind words and promises.

No point in debating the finer points of this though....but KNOC should clearly be keeping schtum re the press.

emptyend

14th Sep '10

Some chunky numbers being traded since the blip up following KNOC's announcement........

....485,000 share has just gone through at 1788p......wonder if that is KNOC buying? Or a hedgie? or.....

oilretire

14th Sep '10

When it comes to DNX I'm small time, very small time and my 0.00000000000000000000000001% (or whatever) holding is held via a high street dealer (HBOS), so it was a wee bit of a surprise to find an answer message on my home phone today from someone representing DNX 'urging all share holders to take no action'

I'm I really that important? Oh what a power trip ;-)

Then again, maybe it's a safe bet phoning all Aberdeen numbers ;-)

Anyway FWIW, still holding for the last scene to play out.

slartybartfast

14th Sep '10

Dana are ringing round even the small shareholders to garner support ( I hold 1400 in the account they phoned regarding).
I saved them the trouble of spouting their spiel to confirm that I currently wasn't intending to accept the offer.

emptyend

14th Sep '10

Would be interesting to know how they organise these things. I have a fair chunk held via Selftrade and suspect that the interposition of a nominee has headed off any call to me.

OTOH I'd think it is largely a waste of time trying to garner support for rejecting the bid per se......the hedgies and others may well reject the KNOC offer - but only if someone tables a better alternative PDQ. If they don't then IMO 50% should be very easy for KNOC, since the hedgies aren't in the game of hanging around waiting for drilling results!

Of course if they could convince Schroeders to publically change their mind then that might be different - but there is evidence that their position has hardened if anything.

EdmondJ

14th Sep '10

Does this Schroder fund manager keep fawning on KNOC because he wants some kind of business from them?

I began to wonder this in recent days and here he is talking up KNOC and doing down Dana (yet again) in the Korean press:

http://www.koreatimes.co.kr/www/news/biz/2010/09/123_73070.html

Or maybe he just wants his quarterly performance bonus.

sirlurkalot

14th Sep '10

EJ,

What phrases exactly in that article are "fawning on KNOC"? How's he "talking up KNOC"?

IMO he's just talking up 18 quid. If there were someone else offering 19 quid that would be even better. He just wants the cash, as much of it as possible.

PS I've never heard of ringing around small shareholders before. Dana must be struggling. Slartybartfast, in which broker's account is your holding please? Oilretire, could you give some hint about how large your holding is please - larger or smaller than 1400 shares?

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DANA takeover bid - KNOC makes preliminary approach.

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Hannibal

847 comments

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