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

18th Sep '10

Schroders, with support of other major funds, emphasised the point that £18 was full and fair in their opinion. Why should they say that if they didn't mean it?(no conspiracy theories please). How were they to judge if they didn't have the sort of reserves info etc. that SirL was calling for? The answer must be that they did.

I think you are giving Schroeders vastly too much credit there! And I don't think that Dana had their CPR report ready to go (and perhaps hadn't commissioned one for a year or so), given the fact that they knew full well that their plans for drilling and deals would make any existing CPR report immediately out of date! Of course Schroeders would get first call on management time in explaining matters, including a detailed understanding of management's opinion of the assets - IF they actually asked for it! But until KNOC arrived with a bid, I would bet they hadn't asked for such detailed field by field info.

I think the real answer to why Schroeders supported the bid (and then sold out, on preferential terms....grrr) is far more simple. In H1 Dana's shares fell from c 1225p to about 1100p at the time of the AGM. Three days later, KNOC make their first approach - and Schroeders see the change of making a stonking return in Q3 (locking in performance for the 2011 marketing push for their funds). A 60% return within a single quarter simply doesn't come along often - and I can understand why Schroeders wouldn't want to miss the opportunity (especially as we are now in a low-return scenario for markets as a whole).

I do, however, think they overstepped the mark with the extent to which they encouraged the KNOC bid.

As to Dana, it is clearly nonsensical to claim the Suncor purchases are worth more than they've paid at competitive auction.

No - that is simply not correct! It is perfectly possible for the Suncor assets to be worth more to Dana than to ANY other competitor for those assets, at least to the extent of the £60mn of capital allowances that came with the acquisition. Other bidders may have been unable to use those assets at all.....and the winning price is effectively NOT set by Dana, but by the level of the nearest cover bid.

I think it's entirely typical of TC that he didn't see it coming because he completely lost sight riding aloft as king of the castle.

That is rubbish, I'm afraid. I had a conversation with Cross at the AGM (3 days before the KNOC approach) in which we explicitly discussed the possibility of an unwanted bid - and he knew full well that an unwanted bid was a distinct possibility. One might fairly wonder why, if that was the case, the defences weren't better-prepared - but I think it was simply a case of a well-timed approach being made at a time when there were two corporate deals in the works and another major well was drilling. Management time would then be at a huge premium and the company would have been constrained from fighting its corner early enough, by being limited as to what can be said in certain respects.

I think Dana's management have been genuinely unlucky with the way events developed - but there is no doubt that they lost control in the very very early stages when Schroeders supported the bid and the hedgies got the chance to pick up large quantities of cheap CFDs from those who doubted there would be a bid at all.

Finally, I think the way that this bid has been run by KNOC/BofA sends an unwelcome message to PIs....but not the one that davjo thinks. The message is this - unless you have COMPLETE control of your shareholder register (as SOCO effectively do, for example), then you are always at some risk of an unwanted takeover on the cheap. I always thought that this was a "risk" with Dana, but hoped that a proper competition would emerge. The reality though is that bids for whole companies in the sector (as davjo has previously noted) are rarely contested - and, IMO because the City understanding of the sector is pretty weak, there is a predisposition to sell out cheaply.

Yes - I still think they sold out cheaply.......even though there has been no competitive bid. A competive bid would have confirmed beyond any doubt that KNOC were trying to buy Dana on the cheap - but the lack of a competitive bid doesn't provide conclusive evidence to the contrary, especially as KNOC were plainly determined to win.

extrader

18th Sep '10

Hi davjo,

You've provided , as ever, some salutary warnings re expectations management ! Accepting that the Soco portfolio isn't such a mish-mash of assets and management/board can control the bidding process, where would you put a realistic price range for Soco, in the evnt a bidder comes calling.....

RC spoke in his interview of the VN and DRC progs potentially raising reserves by a 5x or 6x multiple......even allowing for a more conservative trebling, to around 350-400mm bbl, where would you see a likely takeout range ?

I'd been mentally thinking of GBP 40-50 in 'old money', but maybe that'll need revisiting ;

flyinghorse

18th Sep '10

I think much of the "fait accompli" is as I said in Ventures case, and EE has said above is the inability of the companies to control the shareholder base actions.

I receieve on my door mat almost daily investment guides saying why I must get into Aberdeen/Schroders/Artemis funds.
These guys simply have to make a fund return, no sentiment, no ownership.

A low ball hostile bid was allways a danger for Venture and Dana as long as the shareholder mix was not controlable, and all along the two companies making themselves all the more attractive to a hostile bid.(ie Venture developing its gas business specifically to interest a utility)

As for all the current sentiment, its simply for want of a better word a grieveing process. Some of the pillarstones of the BB's conversations,excitement and gain over the past few years has gone. Presumabaly existing ones are further under threat.

I wonder where Schroders are putting the Dana money?

Tournesolf puts it neatly-he felt an owner,not investor. The only problem here is that owners usually have some end game in sight. If you become an owner its hard not to become sentimental. Change is created for you when you dont want it.

Its hard to know whether Dana management or Ventures were unlucky as both have fallen(or will) to unwelcome bids. Each company could have or perhaps tried and failed to go private in the recent past,but it appears defence is hard to put up and expensive.

FH

sirlurkalot

18th Sep '10

IMO there's a fair amount of faulty analysis, claiming the moral high ground and playing to the gallery just above here, but I'm choosing to not get involved. I'm moving to the repobear line that the best thing is to leave this behind and look for the next investment.

I think Schroder genuinely did think £18 was fair value. I expect they did ask for more information, but probably got fobbed off, so I tend to agree that S didn't have field by field info. Philosophically, I'm not sure that such info has much value if it's not in the public domain and never will be. If I have secret information that some share is worth twice as much as the market price, but the rest of the market will never know that info, is the info actually of any value?

Tom Cross clearly has egg on his face - we've agreed that someone will do at the end of this bid. He didn't want to sell out now and the suggestion that losing this bid battle is OK because he wanted to sell out is improbable. He's overvalued his hand, leading to very odd tactics - higher on this thread you'll read several moments when I thought he had to have an ace up his sleeve because his tactics wouldn't make sense unless he did. It's because his behaviour suggested there had to be a twist to come that I've stayed in Dana shares for this long.

All the fussing here about controlling the shareholder register and the behaviour of CFD holders misses the point that AIUI (corrections welcome) no mainstream analyst had valued the shares at more than £17-18 within the last year, then along comes a £18 cash bid, which most shareholders quickly accept. This isn't the complicated situation that some writing above suggests - it's a simple cash bid at a big prem to the preexisting price that was accepted quickly without any of the trauma that is suggested on this thread. There aren't any legal/operational lessons to be learned about the way takeovers work in the stock market.

"One might fairly wonder why, if that was the case, the defences weren't better-prepared - but I think it was simply a case of a well-timed approach"

"management lost touch with investors or suffered delusions of grandeur or simply were not doing their job properly....[leading to SP volatility] and the opportunity for a well timed bid"
My point has been that investor relations should have been consistently more informative over the long term. Short term timing of approach or SP volatility isn't relevant to my issue, which is that if management really believed value was five or ten quid more than the SP, they should have been (more effectively) doing what it took to get the SP consistently five or ten quid higher. "the normal volatility of a volatile sector in a volatile market" isn't what I'm writing about, which is that if management are right to believe the shares should have been five or ten quid higher, why didn't they do what it took to consistently get the shares there. Sure, there is always volatility, but it should have been from a consistently stepped up level.

Isaac

18th Sep '10

Tom Cross clearly has egg on his face

As do certain Oil experts on this board.

As I said many weeks ago it makes a lot of sense to sell out when a bid appears as most of the value would be realised. Sure there could be another 10-20% to make by holding but why risk losing a chunk of the profits if the bid fails or if you get a director whose determined to push for more money when the market is saying otherwise? There are many stocks in the FTSE 350 that have gone up by 10-20% in the past 1-2 months that people could have bought rather then holding Dana.................

The problem with listening to certain experts on this board is they have been holding for such a long time that they become emotionlly attached and therefore IMO their opinion is clouded.

I don't care about Soco management. They don't care about me. If a bidder manages to convince PointOil to sell and can launch and aggresive bid I will sell out even if it is a 20% premium to the current share price.

I'm here to make money. There are always opportunities out there. I don't need to be emotionally attached to a single company.

emptyend

18th Sep '10

All the fussing here about controlling the shareholder register and the behaviour of CFD holders misses the point that AIUI (corrections welcome) no mainstream analyst had valued the shares at more than £17-18 within the last year,

Incorrect. Goldman's note of 11th May had a 12 month SOTP-based price target of 2106p and said:

2011 exploration should increase materiality; Buy ahead of the rush
On our estimates, investors are currently paying nothing for Dana’s 2010 exploration
programme. Although Dana is not the highest-impact explorer in our coverage this
year, we still see a potential 20% target price uplift if it is successful at all remaining
wells this year.
We also believe that 2011 should see a step change in terms of materiality, with the
company potentially drilling five prospects, which, could each have an impact of 10% or
more on the share price in the event of success.

I agree that the bulk of the street were lower, however......but then if one arbitrarily ignores a chunk of the assets then that is to be expected!

repobear

18th Sep '10

SirL,

Some of the criticism of TC is a little bit off I think.

He was a sportsman, who built up a big and successful business, from not very much of a start. He was never going to just walk away from an offer that was on the low side, but in the end, proved to be enough, without playing to the last minute; You rarely get that far in life, without such an attitude, and I wouldn't criticise him for having a go when the odds were against him.

He stuck his personal tax laibilties on the line and lost a lot of money; AFAICS, trying to protect shareholders' interests. A misjudgement, maybe, but KNOC timed their run well and in the end there wasn't the competition for that mixture of assets that he, and many here, thought there would be.

He played and lost. That's life sometimes.You can't win without knowing there's a chance, great or small, that you could lose.

Noone here will ever know if it was a close call or not, I reckon.

Case closed?

repobear

Meanwhile SLG closed at a year high and about a third higher than you could have bought, after the first testing of the Cladhan discovery, just over two weeks ago;-)

sirlurkalot

18th Sep '10

repo,
The indications are that most shareholders didn't even think the offer was on the low side. They effectively accepted it quickly with unusually low support for management. If it were a close call there'd have been sub-50% acceptance and extension of timetables and all that, but since that hasn't happened I think it's fair to say that the offer wasn't even a close call.

It's perfectly fair enough for TC to fight, but IMO there have been moments where his tactics didn't make sense without him having another card to play. Rather than insisting that KNOC sign an undertaking to not go hostile as a precondition to negotiating in Calgary, he'd have been better advised to try to negotiate up the 1800p that was on the table then. We know at Calgary he didn't negotiate, as distinct from did try to negotiate but couldn't get more - it seems there's never been a serious effort to get the 1800p up. He thought 1800p hostile was defensible, but actually the big shareholders indicated quickly that it would be enough. Bearing in mind where most (but not all) analysts price targets were, him thinking 1800p hostile was defensible seems optimistic.

ee,
Could you send me a copy of that GS note please?

Later edit: Thanks for the GS note, and you're quite right that GS are a respected broker showing a price target of 2106p, well above the bid level. Perhaps they may be alone in that though??

SW10Chap

18th Sep '10

Who knows what you know?

I think this thread really drives home the point that the value of anything is only what the market will pay. If the market is uninformed - or indeed, has different information than you - then the price it will pay is different. Over time I've witnessed discussions here and on TMF that have centred on how a particular share is undervalued, and of course these are the discussions that PIs and bulletins boards thrive on.

However, the ultimate question is whether the market will 'get it' or not. 'Getting it' will mean that either the market will identify those same reasons and then price them in, or whether some other kind of event will 'out' the value. A clear example of the second case is investors trying to evaluate their own CoS for a given well and then placing the appropriate bet on a positive outcome, an outcome which should later become readily visible to anyone, namely flowing hydrocarbons.

How can the market price a secret?

However, for as long as these reasons (let's call them secret ingredients) remain locked out of sight to the majority of investors, their value won't be priced in. That's not too much of a problem for the LTBH invesor, as long as she's confident that those ingredients will be revealed at some stage in the future whilst she's still a holder. The problem comes when someone else cottons on, someone with enough cash to buy a significant proportion of the company's shares, and tempts other holders to sell at premium to the existing price - but yet still a price that doesn't factor in the magic ingredients. The LTBH investor feels hard done by - forced into a sale before the secret ingredients were revealed.

You would do the same

And that's what all of us would like to do, given the resources, isn't it? We buy shares where we think we know something others don't, and therefore buy those shares at what we consider to be a discount. It may be that the seller doesn't have the same view as us and is happy to sell - or it may be that the seller has the same view as us but other circumstances are forcing him to sell at what he considers to be a discount. In that example, we've used the fact that we have available cash when the seller hasn't to buy his shares. He may even feel hard done by - forced into a sale before the secret ingredients were revealed.

How to get the secrets out - if they exist at all?

I haven't been a Dana holder for some time now, and actually one of the reasons I sold a few years ago was because it always seemed that the management knew a great deal more about the company than I did - or ever reasonably could do. Clearly there are PIs who established excellent relationships which enabled them to get hold of the information they needed - and I'm sure the instos did the same - but I didn't have the time to engage in that level of rapport.

Nevertheless, I still feel that the danger of the secret ingredients which are never revealed or understood exists with other companies - and perhaps davjo's post illustrates that rather well. We know that the directors of SOCO occasionally express frustration that the market doesn't seem to be 'getting it,' despite their efforts and apparent openness. Until now, this hasn't mattered too much to me because I've always thought the end-game would be decided on the basis of a decent open competition.

The lesson here seems to be that I should keep a discount in mind - just in case someone with financial clout manages to surround and hug enough shareholders before the secret ingredients are revealed.

SW10

emptyend

18th Sep '10

Very good post, SW10. That is the problem in a nutshell.

It is a problem that managements should ALWAYS be paying attention to, unless they are in the happy position of having a blocking stake under control (as SOCO will be, providing that key holders remain onside). Ultimately, though, it is a vast amount easier to ensure that the right price is obtained in a sale if the market has already "got it".....and therein lies a problem...... because all the evidence of my last 10 years or so investing in the sector tells me that managements regularly/frequently lead the analyst/investor horses to water....but they can't make them drink. There is absolutely stacks of evidence of analysts (wilfully?) refusing to factor in new information that they are presented with on a plate.....never mind failing to dig out details of the sort that SirL says he seeks.

If analysts persistently get it wrong (or don't cover the company at all) then there is a fatal weakness in the communication chain between a company and its investors - and IMO this will be an important factor why the sector will continue to shrink as, one by one, companies get taken out because institutional investors don't fully understand them. I am frankly becoming concerned about the outlook for the sector in general, irrespective of the compelling fundamentals on a medium term view.

davjo

18th Sep '10

ext
where would you put a realistic price range for Soco, in the evnt a bidder comes calling.......I'd been mentally thinking of GBP 40-50 in 'old money', but maybe that'll need revisiting ;

Not wishing to corrupt the thread I'll be brief. Right now, off the top of my head I'd say a realistic range is 450p to 900p in new money but of course the drillbit needs to have its say before proper debate can have any useful purpose.

thegreatgeraldo

19th Sep '10

Your point is irrelevant to the price paid which was clearly the best available in the market. That's indisputable unless you think the sale process was rigged, which I imagine you don't? Of course, Dana or anyone else would expect to profit from such deal otherwise they wouldn't buy it, but it's only 'worth' what it'll fetch in the market and that's what some people are getting confused about.

Hi davjo,

My point about the competitive nature of the auction is, I think, relevant. Clearly Dana feel they've paid less than the asset is worth to them. Dana may, indeed given the CPR, it's not unreasonable to believe that they would, have paid more for the asset. Other bidders may have wanted to pay more but , if they were using finance for their bid, have been constrained by terms imposed by their lenders. Banks may have wanted a minimum level of cashflow above financing costs or not attached much value to P3 for example ?

Apologies if I was in a grumpy mood when posting my original comments.

AnonymousUser858

19th Sep '10

When I worked in a major independent N Sea E+P Co some years ago, it was well understood that tax credits/losses made a huge difference to the net value of acquired assets and that the tax treatment differed very significantly from one potential acquirer to another

So it was entirely correct to state that a target asset had a value which was radically different depending on which co was acquiring it and what their own tax situation was.

This meant that an asset could be worth far more to one co than a rival.

_________________________

on a different tack it is not many years since Hardman and Woodside exercised their pre-emption rights to stop JV partner ENI (I think it was them) selling their stake in Mauritania to was it Mobil? Having deployed their pre-empt rights Hardman flipped the stake they bought for a profit of $100 million in a 2 week period. So there is proof positive that assets can be bought at less than their market value in some cases.

davjo

19th Sep '10

Evening tgg

At risk of boring people to death, the ultimate value test of any asset is what it will sell for in the market at any given time. It is completely irrelevant to what it might be worth in future since its value may either increase or decrease. What matters, in the context of what we're talking about, is what Dana paid now for the Suncor assets, that being the true market value, not some futuristic figure of the imagination dreamed up by a CPR paid for by Dana. The market is King!

Apologies if I was in a grumpy mood when posting my original comments.

No prob, I'm not immune from the odd bout of grumpiness myself, although thankfully I do have a release mechanism chucking pears at the blithering squirrels...and scoring on occasion, not that it puts them off mind....bit like the red-hand merchants ;-))

Anyhow, that's me out on this topic.

oilretire

21st Sep '10

I guess it doesn't really matter now............

http://www.investegate.co.uk/Article.aspx?id=201009210714320178T

Dana Petroleum plc is pleased to report that the Dana operated Cormoran-1 exploration well has begun drilling offshore Mauritania, West Africa, just 2 kilometres southeast of Dana's existing Pelican-1 discovery.

The conductor has been run and Dana has already drilled the 26 inch hole section down to approximately 2,226 metres. The current operation is preparing to run 20 inch casing, before drilling ahead.

Cormoran-1 is being drilled by the Maersk Deliverer drilling rig and is located in Block 7 offshore Mauritania. The planned total depth of the Cormoran well is approximately 4,600 metres and the well is being drilled in a water depth of 1,632 metres.

Cormoran is the largest prospect in Dana's 2010 exploration programme and, based on 3D seismic mapping, has a target reserves range of between 400 million barrels and 780 million barrels of oil equivalent.

Dana holds the largest working interest in this Block 7 Production Sharing Contract area with 36%. The well is expected to encounter three discrete zones of interest between approximately 2,890 metres and 4,600 metres.

emptyend

21st Sep '10

....just goes to show how well-timed the KNOC move was.

Can't see it making any difference at all to the level of acceptances though, irritating though it is.

kenobi

21st Sep '10

Agreed EE,

I have thought from the start that they dealt with the situation well. Apart from getting snared into the insider information bit, they had a plan, a price they were willing to pay, and knew they might have to pay a whole lot more if they let the drilling campaign get results. I would be astonished if they hadn't let it be known they were going to pay a premium to the share price privately before announcing publicly and the investment banks were only too happy to buy up the stock knowing there was a big premium in it. Knoc didn't get their hands dirty or buy any stock. This left them free to walk away if need be. At the same time as long as no counter bid appeared they were sure to get the business for 1800 by going hostile, no state company had ever done it, they might have been scuppered if someone else had bid, that's a chance they were willing to take, and unfortunately for us they called it right.

they could have got tangled up in offering 1900 or 1950 would even that have been enough for the management recomendation ? who knows, looks like they have saved 100's ?M of dollars,

Not happy about it, but if it was me launching the bid I would be,

what is the date for acceptences ? Friday I guess ? any idea when we might get paid ?

depending on price I may well sell into the market the last bit of my position, I never had a significant position,
and I bought a large chunk of it this year, so it hasn't worked out too badly for me, though if the drilling campaign had worked out, it would have been much better, we shall see.

From Knoc's point of view they have got a good potential upside at limited cost,

K

cochin

21st Sep '10

As a holder of the stock I have been following the debate on this thread from the outset. After many weeks of hot air being spouted by the over inlated ego's on this site, you know who you are, you all run like rabbits at the sound of gunfire. Pathetic!

Fangorn

21st Sep '10

Someone got out of bed the wrong side this morning!

Looks like some more Dana profits are being ploughed into several other oilies - some good upward moves across the sector. Of those that I keep tabs on, standouts seem to be:

DES up 5.9%
EO up 9.7%
FPM up 6.8%
NPE up 43% on back of Kracken news.
Pele up 13.2%
RKH up 8.7%
RPT up 5.4%
XEL up 13%

GKP seems pretty quiet today, although it has risen significantly over the last few days.

Anyone topping up at these higher levels in the likes of EO, FPM, or NPE today. Various comments from the likes of FT Alphaville/ Edmond Jackson all seem to point towards further gains potentially to be made.

eg NPE
FTAlphaville - The numbers behind NPE are looking increasingly impressive - And don't forget there is still upside potential in Catcher, and the Mariner field - hence best case NPE could easily be worth north of 500p/share. Keep buying - this is a must-have stock.

eg FPM
FPM still looks like a good investment proposition because of its extensive exploration programme - I'd say it's worth something like 220-230p/share on a risked basis, although if a couple of its bigger prospects come in it could be trading on a multiple of this - I'd keep buying.

And with the fall of Dana are many taking the plunge into PMG with some of their loose change?

djpreston

21st Sep '10

And what's the point of that post.

There were two camps:

1. Those like me, who were of the opinion dnx would fall and no counter. Thus prob sold at 1790+ (could have got over 1800p) and moved on.

2. Those who felt the co was worth more on its own or a counter would arrive. They were happy to continue to hold and bear any opportunity cost.

Of course the market could have tanked whilst the offer was on the table (like the Imperial Energy scenario) and then the second camp would be laughing. That it hasn't is one of those things. So it hasn't worked for group 2.

Both approaches were perfectly valid.

So why the sniping?

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DANA takeover bid - KNOC makes preliminary approach.

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About the Author

Hannibal

847 comments

Who knows what you know?

How can the market price a secret?

You would do the same

How to get the secrets out - if they exist at all?

Unlock the metrics for all these stocks and more...

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