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
Well I for one have found it fascinating and most instructive as to the various angles put forward but then, unlike you it seems, I'm interested in the intricacies of a rare hostile situation, something we haven't seen in the UK E&P sector for the 15 years I've been following it.....
As Marben pointed out, of course Venture went in a very similar manner. The lack of a counterbid in Venture's case, with the overall market shellshocked after the 2008 falls, was more understandable than in Dana's case, especially given the vastly different exploration potential. I also think it is important to consider all the angles, implications and lessons from such bids. As you say, most deals in the sector tend to be agreed deals....but if, say, someone decided to make a hostile bid tomorrow for SOCO at 700p then we'd be faced with a similar set of considerations (though would probably be more easily led by management, given their holding...though of course there is always a possibility that Pontoil could play the Schroeders role, which would certainly change the dynamic!).
I think the moral of this story is that TC misread the cards he was holding and he probably could have got a bit more, even 50p, by signing up to an agreed bid allowing more time for the possibility of a counter offer, even though that may have been wishful thinking.
That does indeed look to be the likely lesson. Once Schroeders declared themselves keen sellers and the hedge funds had a big chunk of skin in the game then there was "certain" (inverted commas because it isn't quite a done deal yet!) to be a deal. What I simply cannot understand is why that would appear not to be recognised by management - I've certainly been making my view plain enough to them for weeks. Of course if one goes back to the early days of the bid, then it would have been reasonable to think that KNOC would eventually play ball and decide to pay some amount more for a recommendation, because most deals DO end up as agreed deals and because Dana's management and infrastructure should have been of value to a KNOC that is far below critical mass in terms of management assets on the ground.
OTOH of course, KNOC may have started out from the point of being pretty certain they had a winning hand (perhaps with the knowledge that other more obvious candidates had looked and decided against bidding) and recognising that Cross would never ever agree at £17, £18 or any other number they were prepared to pay - in which case the game was always going to be a hostile hardball one from the outset.....and one in which Cross was never going to be allowed to get a seat at the negotiating table on price. And bear in mind that this may well have been over by now if KNOC hadn't been made insiders.
As to Schroders, one has to bear in mind they aren't going to sit there holding forever. Their best opportunity to crystalise value was always going to be a sale of the company....a fairly rare event. At what point could they see a sale in future if they spurned KNOC's offer now? It's not as if Dana had a clean cut portfolio without considerable abandonment liabilities etc. What would you do if you had control over their £280m interest in the company? How are you going to bring that money safely home?
Yes this is another very good point - though of course they now have to find other homes for their cash. At some point institutional holders probably have to conclude that companies in which they are invested have grown as much as they can - and should be disposed of before they start destroying shareholder value. That isn't my view of Dana (nor the view of Dana management) but if you were an institution sat on a huge position....and perhaps considering that dusters at Anne Marie and Cormoran could wreck your 2010 performance figures.....then you may well take a different view. I do, however, think that Schroeders have been SO strident in their support for the KNOC bid that they have removed several cards from Cross's negotiating hand with any potential counterbidder - and that isn't generally in shareholders' interests.......which is a point I will be bearing in mind for the future, unless a good reason emerges for their view that £18 was a bid that should be hit.
In sum, I think it is very well worthwhile spending the time looking at the nuances of these situations. Most investors in midcap and smallcap E&Ps are going to find that the ultimate exit route is via a corporate deal (or they had better hope so!! ;-))......and so when one comes up, it should repay some time focusing on the details (including, incidentally, what led KNOC to bid in the first place). In my case, of course, I have other reasons as well to consider the topic in detail....because a VERY clear lesson from the bid for Dana is the old Boy Scout motto: "Be Prepared".
ee
