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

-->

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

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Hannibal

Premium Member

847 comments

djpreston

21st Sep '10

Fangorn.

There's poss some recycling but I'd say the main driver is PI interest being reawakened by the stunning successes of catch/cladhan/kraken thus fuelling the rises.

Pmg presentation this am highlighted again their excellent story. I'd also highly recommend looking at Niko Resources.

Fangorn

21st Sep '10

Appreciated Djp. Will go take a look at Niko,not come across that one.

Is the PMG presentation available online(or was it just for institutional investors?)

Ta

cochin

21st Sep '10

It's not that Fangorn, I'm my normal self today!
Anyone who has held the shares over the long term has presumably had some faith in the board's judgment and competence. At a time of crisis for the board they have asked shareholders to trust them and reject the offer. Instead of showing that trust 'reluctant' sellers have simply folded under the bully boy pressure employed by KNOC.
The offer is either full value or it is not, depending on your own view. If you don't believe that it is then surely you await developments.
The argument that delay in acceptance is an opportunity cost appears to me to be a fig-leaf for grabbing a share of the cash whilst its still on the table for fear it goes away.

Fangorn

21st Sep '10

Hi Coch

Interested in your "Instead of showing that trust sellers have simply folded under the bully boy pressure employed by KNOC." comment. Have to disagree with that. Viewing from the sidelines(never got round to picking up a stake in Dana so I've been kicking myself daily!) it was , imv, inevitable that 1800p would entice many shareholders to cash in. Why - well, prior to the bid materialising the stock was trading in 1100-1350 range or so, knoc offered a significant premium to that.

Taken in conjunction with the fact that we've just made it through a massive financial crisis, and with the end of 3rd quarter upon us, it was a given, imv, that such sizeable profits would be snapped up by the institutional investors - it's not often such a generous premium is achieved in such short order. All the better to flatter 3rd quarter figures.

As to whether the 1800p takeover was a full reflection of the value of the assets of Dana I suspect the answer is a resounding "No", but it was nonetheless at a significant premium to where Dana has been trading prior to the Knoc announcement - which was all that mattered, both to the institutions, the hedgies, the CFD players and the short term traders/PI's. Which is a shame for the likes of Croft. Still, perhaps he can work his magic with Son of Dana!

cochin

21st Sep '10

I have no problem with those who sell either because the offer represents full value or alternatively appears to be the only offer on the table.
There has been a long and interesting debate on this board about the value of the offer including the points you raise in your post; shareprice prior to the bid etc. If KNOC succeed then good luck to them for playing a blinder, but the hand-wringers by 'reluctantly' selling out early have simply rolled over and not placed any trust in the advice emanating from the board.
If one chooses to take the hard-nosed pragmatic line that its time to take the cash and move on then that is fine in my view and perfectly respectable, not to say a commendable trait in an investor. Those who have been lamenting the loss of their company should surely not pull what remains of a rug from under the feet of the board.

sirlurkalot

21st Sep '10

cochin,

What exactly are you suggesting? If it is that, if people here think the bid is insufficient they should refuse it, wake up to the fact that almost everyone here is too small a holder to make any effective difference! This bid was always going to be decided by the institutions and hedge funds, and it makes little difference what any of us do. Our only possibility was/is to try to see what the bigger players are going to do, why do you think what the people here do actually makes any difference?

cochin

21st Sep '10

If, or when, the bid succeeds (because of the weight of institutions' acceptance of the offer) we will all get paid out. I simply suggest that those who believe the Company's defence document i.e. hidden further value, should put their trust in the board. The delay in receipt of the payment may incur an opportunity cost or it may not, each of us will pursue our own course with differing outcomes.
If it is the case that no-one on this thread has on the one hand complained about the inadequacy of the offer but has none the less gone on to accept it then I withdraw any criticism real or implied. Anyone who does believe that their company has greater value than the offer represents should simply put their trust in the board, for all anyone knows there may be an institution or two who will be doing just that.

By way of clarification I should say that I too have a small stake in Dana, it represents c4% of my portfolio by current valuation, I've held my shares for two years and I have no emotional attachment to the stock whatsoever. £18 represents a 50% profit over the time I have held the shares so I have no particular complaint on those grounds.

My ire has been raised my the manifest self-serving nature of the investment industry, fund managers etc. and the strong arm tactics employed by an agency of a foreign state. My sympathies are very much with Tom Cross, a man I have never met, and other stakeholders who are being deprived of the business they have built by people without the good grace to negotiate properly and by fund managers whose only interest in the company is what it will do for their commission and bonus.

I'll sell when the board throws the towel in, not before.

emptyend

21st Sep '10

If it is the case that no-one on this thread has on the one hand complained about the inadequacy of the offer but has none the less gone on to accept it then I withdraw any criticism real or implied. Anyone who does believe that their company has greater value than the offer represents should simply put their trust in the board, for all anyone knows there may be an institution or two who will be doing just that.

By way of clarification I should say that I too have a small stake in Dana, it represents c4% of my portfolio by current valuation, I've held my shares for two years

I'm not in that position. I think it is very clearly a cheap bid but, with around 20% of my portfolio in DNX and having held for 6 years, the considerations are somewhat different.

I expected to see another bidder - and I'd hoped for some news from AM. If either were to make a difference, they were needed a week ago. Neither have arrived. Accordingly, I followed the same line of thought as SirL....and simply did the math. There is no chance at all that KNOC will fail to get over 50% this week - unless someone makes a shock late bid tomorrow at close to £20.........which seems an extremely remote prospect, given zero indications of any such bid for the last few weeks.

That being the case, the issue is at what point the KNOC bid becomes unconditional - and the sooner the better on that score, re getting the cash.

Dana's fate was effectively sealed weeks ago when Schroeders decided that their Q3 performance needed pumping up to rescue their year (check the figs) and the hedgies took advantage of Dana not being able to marshall an immediate defence. The only thing that would change that is a counterbid - but it wouldn't stop Dana being bought, even though the timing is appalling for longer-term shareholders.

I have met and spoken with Tom Cross on a number of occasions ...and, if "his" company is about to be bought on the cheap I have rather less sympathy - because I have specifically pointed out to him on several occasions the risks of just such an unwanted bid turning up and pre-empting drilling activity. That said, I do think that he and the board have been quite unlucky with the way that KNOC squeezed their bid timing between corporate deals and drilling activity. It looks like it is working out perfectly for KNOC - and very unfortunately for Cross....and the rest of the shareholders (other than Schroeders and the hedgies) who think that there was a good deal of truth in Dana's defence document (even if one can quibble about precise valuations.......it looks to me to be more like 10% cheap to where it should have been, which is a factor I'll remember if I see KNOC bidding again - because I would sell to almost anyone else in the event of a contest)

cochin

21st Sep '10

Fair point ee, I was perhaps ignoring the differing circumstances of individual investors. Do you expect that we will get an update by Friday on the state of play regarding KNOC's holding?

jonnyt

21st Sep '10

By Thursdays close Dana is dead unless Anna-Marie is flowing profusely

hannibal

21st Sep '10

Emptyend,

Two questions if I may?

1.) What could Tom Cross and the rest of the board @ Dana have done to preclude this exact scenario? I.e what is it that you think they have done wrong?

2.) You mentioned that you would sell to any other bidder than KNOC, does that imply you are angry at them for getting DANA at the cheap?

As you've mentioned before, for the value in a E&P to be realised, one option is to sell off individual assets, Another, is a competetive bid which requires two different bidders to unlock value. If KNOC eyed up a package of assets unattractive to any of the other major oilies and bid for them, then surely it's good luck them; isn't it the perogative of every buyer to get the best possible price?

emptyend

21st Sep '10

Two questions if I may?

1.) What could Tom Cross and the rest of the board @ Dana have done to preclude this exact scenario? I.e what is it that you think they have done wrong?

Very difficult to answer this question precisely, because I don't know at all what has been going on since the AGM (because KNOC tabled their approach three days later). However, on the face of it they might have:

a) Paid more pro-active attention to the share price before the approach was made; there was no disagreement with my suggestion that it was trading cheaply against underlying value, though the view was that either a bid or drilling success would close that gap. (However - I also know that this is a very easy think to see and say, it can be very difficult indeed to correct in practice if the market arrives at a different (wrong) consensus!). A premium of 30-40% would have seemed less "compelling" than one of 60%.

b) Revealed the potential level of the approach that had been rejected. Knowing that a £17 approach had been rejected may have prevented so many selling to the hedge funds at under £15? I'm not sure of the Takeover Code practicality though.

c) Been ready to release the CPR earlier - ideally when the approach was first made. I imagine that this was made difficult because of the two deals in process - but, even so, prompt release of the this key element of defence may have forestalled some of the early acceptors.

There may be other things too - but basically the bid is succeeding (despite a "low" price) because the share price was too low in relation to the "real" value of the company. The biggest obstacle though has been not being able to find a competing bidder - and I don't know why that is at present....though I think it more likely to be a matter of strategic/asset fit than of price per se. Perhaps (as I surmised some while ago) the other "obvious" bidders (OMV etc) had already had a look and decided not to play?

2.) You mentioned that you would sell to any other bidder than KNOC, does that imply you are angry at them for getting DANA at the cheap?

Yes. I think that strongarming Dana and refusing to discuss price and/or a recommendation was frankly opportunistic and rapacious. That isn't the way things are normally done in the sector - though of course normally one doesn't have the major shareholders being keen to sell at almost any price.

As you've mentioned before, for the value in a E&P to be realised, one option is to sell off individual assets, Another, is a competetive bid which requires two different bidders to unlock value. If KNOC eyed up a package of assets unattractive to any of the other major oilies and bid for them, then surely it's good luck them; isn't it the perogative of every buyer to get the best possible price?

Of course, once the bid has been tabled any disposal or acquisition has to be either approved by the bidder or by a meeting of shareholders. So asset sales would have been difficult (though they might perhaps have considered offloading the FPM stake before the formal bid?).

Regarding the prerogative of bidders - people can do what they wish. I just feel that, in this case, KNOC would have got more value out of the whole deal if they had entered into negotiations to get a recommendation. It might have cost them more cash but I think they would have obtained more value in the long run.

We'll never know of course exactly how things might have developed if circumstances had been slightly different....

FWIW

AnonymousUser858

21st Sep '10

Cochin

I doubt there are many/any PI's angrier than I at this cheapskate bid and the aggressive/hardball/hardnose tactics of KNOC. Nor are there many people feeling more contempt for Schroders et al. And there can be few if any PI's who have been more vocal than I in their support of Dana mgt than I but the realpolitik of the situation is as SirL said that if you added us all up together we would come to half of diddly sqaut compared with the institutional investors who decided ages ago that they would sell Dana down the river for a quick cheap profit because that way their abyssmal investment returns across their whole portfolio get covered up and they qualify for the vast and utterly undeserved bonuses that this parasite class are awarded.

So having got all that off our collective chests there are things to do and they do not include breast beating and weeping and gnashing of teeth.

Sic transit Gloria Dana.

The E&P is dead, long live the E&P etc etc etc

I'm going to do what is in my own interests given the regrettable situation. IE I do not want my capital tied up in a bureaucratic tangle controlled by KNOC. I'd rather cut the umbilical and walk away and do other things with my intellectual/emotional energy.

I note that other holdings in my portfolio are doing interesting things at present -NPE and XEL to name but 2

Not every PI agrees with my/your assessment. But all of us benefit from open communication and fromunderstanding the dynamics of investor thinking. We do not gain anything from beating each other up.

davjo

21st Sep '10

Apologies for flogging a dead horse but I really think the problem with Dana in the eyes of instos was the absence of an obvious exit strategy, emphasised by the mixed approach of growing by multi acquisition and somewhat obscure overseas explo. As I see it, TC's expertise is in the N.Sea and he's made a pretty damned good job there for Dana. Trouble is, venturing beyond has clouded the picture. As I've said before, it's as if he's been more intent on creating an empire and in so doing almost trying to make the company unattractive to suitors, rather than focusing efforts to crystallise value for shareholders. That was his mistake imo.

Paladin had not dissimilar N.Sea assets but prepared their portfolio for an orderly recommended sale in the open market. Others like Encore and Soco are very clearly focused in their policy to sell when the time is right. TC was not in control of events because he had not seriously taken on board the risk of being taken out unexpectedly. KNOC have clearly outmanouevred him leaving much egg on his face...albeit he'll still be much the richer in cash terms :-)

Anyhow, I now draw a line as my last post on this thread. Good luck to all reinvesting the proceeds. It wasn't so bad a result in the history of all our portfolios performance was it? ...a rare situation where there are no losers in sight ;-)

EdmondJ

22nd Sep '10

I thought the exit strategy always was, to sell the business, however the timing of bidder interest - as we can see - rarely coincides with shareholders' best interests.

We are not in a lending crisis or oil prices plunging, there is a sense for increasingly rare oil & gas reserves, so if no one else is prepared to table an offer then it must be a verdict on the suitability/attractiveness of Dana's assets. Presumably Schroders and others have pondered, where is the bidder likely to come from, hence motivation to ease KNOC's way in here.

It's some breakdown in investor relations also, where the principal shareholder feels it best to act this way, also those institutions who caved in to the hedge funds buying in the region of £12-15.

Dana's announcements this week reflect vigour but unless the bid is not declared unconditional and something stupendous happens at the Anne Marie drill bit...

EnglishDragon

22nd Sep '10

Why did KNOC choose Dana over producing assets near South Korea?

Why is Dana a good strategic fit?

I don't understand ... I understand South Korea wishes to buy oil assets because it is a net importer.

But how does it help to have production many thousands of miles away? I don't know the details of North Sea production but I know SOME is piped ashore and put into storage in Scotland.

Better than none at all ... but why Dana over producing assets nearer South Korea?

emptyend

22nd Sep '10

Why did KNOC choose Dana over producing assets near South Korea?

Why is Dana a good strategic fit?

Look at where KNOC's assets are on their website. They have a strong base in Asia, which they can grow organically by buying into individual assets. They have just bought businesses in North America (Harvest etc).....but there is a damned great hole in Europe and Africa, where they have a stake in only one non-operated field in the North Sea. Dana plugs that perfectly.

But how does it help to have production many thousands of miles away?

It hedges the price. Selling production locally from Dana's assets and importing stuff that is more convenient is the sort of "swap" that the majors do on a daily basis.

EnglishDragon

22nd Sep '10

Thanks for the reply.

It hedges the price.

What is the main thing which affects price? Tax? Is the main advantage of having a wide variety of oil assets over a concentrated portfolio a hedge against a sudden tax hike like happened in the North Sea a few years ago? Or its diversification in case a field goes into declining production? Or something else?

cochin

22nd Sep '10

Tournesol,

No arrows aimed at any specific individuals and no offence intended. Maybe if my own interests in Dana were greater I might not be quite so trenchant in my views.
I'm not a fan of top-slicing, I prefer to stick with the good stock I hold, so my own portfolio is far from balanced. A kindly IFA would have a field day and earn lots of commission rebalancing it if I allowed them near it.
Good luck with your investments, I'll continue to follow your posts with interest!

SW10Chap

22nd Sep '10

But how does it help to have production many thousands of miles away? I don't know the details of North Sea production

On top of any strategic aims, remember also that different provinces produce different grades of oil - which, incidentally, also illustrates why it is a fallacy to assume that the UK (or anywhere else for that matter) can be fully self-sufficient in oil.

Just because the pub next door has lager on tap, doesn't mean that you wouldn't occasionally travel a few miles to get a real ale :-)

The North Sea has an oil which is (typically) described as 'light' and 'sweet' which is ideal for refining petrol and other high-value distillates. Oil from the Far East is (typically) sweeter and lighter, while Middle East oil is (typically) more 'sour,' having a higher sulfur content.

SW10

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

Take a free trial

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

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

Take a free trial

DANA takeover bid - KNOC makes preliminary approach.

Unlock the rest of this article with a 14 day trial

About the Author

Hannibal

847 comments

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

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