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

kenobi

12th Aug '10

well theres our answer at least in the first instance, down 150 to 1525,

I am a little surprised, but then I was tempted to topslice this morning when I read the Document from Dana.

However I do wonder if KNOC make it clear they are interested at 1800, whether this just opens the door, to yet more institutional buying at 1500ish, because they believe that an offer at 1800 probably hostile is in the pipeline, giving a 20% potential upside.

Companies are worth whatever someone is willing to pay for them, and can go for whatever the shareholders are willing to sell for. I don't know much about these situations, so my oppinion is worth little, but I don't know why they wouldn't just go hostile with an offer at 1800 at this point or perhaps in a few days, once the insto's have had a chance to fill their boots at these levels.

but as I say, don't know much about these things,

cheers K

djpreston

12th Aug '10

Well, curiouser and curiouser said Alice.

KNOC's intransigence seems somewhat bizarre but, as Mark said, no doubt we will get KNOC's side of the story (probably today).

I really cannot understand their negotiating tactics (KNOC) If they were wedded to the 1800p offer then just launch it - a raid on the market today with Schroders and others signed up (subject to a 10% increase drop out clauses) and surely its a done deal? After all, the market's weak, nerves are building and the fall today gives plenty of pause for thought for the holders as to what might happen if the bid failed. All the momentum would be with KNOC. Hell, I couldnt imagine a better scenario in which to be bidding.

Their best hostile tactic may well be to offer 1900p-1950p as a 10% get out clause (to allow big holders to withdraw their irrevocable acceptances) on that woudl probably take it beyond what anyone else woudl be prepared to pay (2090p - 2145p).

FWIW, I topped up a bit more sub 1500p this morning on the plunge. 20% upside as a minimum if KNOC come through and whilst it could well drop to 1200p on a failure, thats a 50/50 reward and I dont mind holding DNX bought with an average (incl top ups of around 1350p).

BrusselsLad

12th Aug '10

Surely we should expect a statement from KNOC. This is an aggressive response from DNX setting out all the conditions that have been so far put on the table and no one can expect them to do more without an NDA in place - it is the bare minimum.

Seems unrealistic from KNOC or Merrill to think that DNX could do more at this stage. Seems also unlikely that KNOC can just walk away although there is a great deal of "face" at risk here.

I am only an amateur in these situations being normally only involved in the strategic aspects but this almost seems a text book way of how not to conduct an uninvited bid approach.

Waiting now for the next move !

BL

emptyend

12th Aug '10

Their best hostile tactic may well be to offer 1900p-1950p as a 10% get out clause (to allow big holders to withdraw their irrevocable acceptances) on that woudl probably take it beyond what anyone else woudl be prepared to pay (2090p - 2145p).

Yup..... ;-)

FWIW, I topped up a bit more sub 1500p this morning on the plunge. 20% upside as a minimum if KNOC come through and whilst it could well drop to 1200p on a failure, thats a 50/50 reward and I dont mind holding DNX bought with an average (incl top ups of around 1350p).

Sound thoughts.....looks like you weren't alone, given the sharp recovery off the lows. Don't agree with the £12 thought (except perhaps as an immediate knee jerk).

Question is....will anyone make a raid today? And will KNOC say anything just yet?

fullbreakfast

12th Aug '10

The most curious part of the announcement this morning, assuming we can take it at face value, is KNOC's initial agreement to move to due diligence on the basis of an NDA being signed, then coming back some days later saying they won't do due diligence without a rec for the £18 offer (which they must have known would not be forthcoming given the public position of the Dana board).

One can envisage a scenario where there is a KNOC negotiating team who have an appreciation of what it will take to get a deal done, but whose hands are being tied by authorities at home who don't. If those authorities are sufficiently stubborn it's possible that they will tell KNOC to walk. It may boil down to the question of whether there's more face to be lost by tamely walking away, or by upping one's bid after having taken a public stance that £18 was absolutely positively final? Neither one offers much potential for looking like a tough guy.

From this perspective a hostile bid at £18 would perhaps be an easier middle way, even if not the most rational or the one best calculated to succeed.

marben100

12th Aug '10

Hi oilretire,

Obviously DNX gives them production now, not later.

IMO the deal would give them both. Barbara/Phyllis and the Western Isles development are both due on stream around 2013. Does anyone have any figures for what they're expected to add? I haven't found any but believe they're material relative to current production, which was a key reason for me buying Dana when it was below £13..

Development of FPM's prospects could also add substantial production... actually, there's an interesting thought. Once FPM have appraised their discoveries, I guess they'd be interested in an offer from a KNOC owned Dana to take the discoveries off their hands at a reasonable price and develop them - or in a major farm-in deal. As Dana already own around 30% of FPM, the "real" cost to Dana/KNOC would only be about 70% of the price offered to FPM.

The PetroCanada acquisition also brings more new developments due on-stream in future (Medway & L06-B in 2012) and is stated to bring 20mmboe of upside potential (risked); 60mmboe (unrisked).

Cheers,

Mark

sirlurkalot

12th Aug '10

This statement this morning seems very much the Dana side of things. As marben noted above, it doesn't really add up and seems to attribute odd behaviour to KNOC. It doesn't make sense for KNOC to refuse to sign a non-disclosure agreement in order to do due diligence, instead requiring a recommendation before DD - there's something we're not being told here. We should hear from KNOC shortly.

Dana's management's behaviour reduces the likelihood that KNOC would go out of their way to retain top management, thus increasing the likelihood of a hostile bid if that's the way KNOC want to go. Raiding the mkt now to get some cheap stock before going hostile at £18 would be a logical approach. I suspect they'd get 50% of the shares with a raid now and going hostile at £18 if they wanted to and had the cojones to do so.

KNOC appears to be unwilling to go above £18. I'm not surprised by this, and I think the hopes expressed on this site that £19+ is easily obtainable seem, well, pretty hopeful. Taking Dana's questionable statement at face value, KNOC doesn't seem desperate to do this deal.

marben100

12th Aug '10

Hi SirL,

What is your view on why all these hedgies were piling in at around £17?

Thanks,

Mark

lfc

12th Aug '10

The market clearly thinks KNOC could walk and presumably thought there was always a chance of this otherwise the shares would have been trading close to £18 rather than £17 before this morning. £12 as the ultimate collapse-price seems reasonable given that was the price pre-offer and that kind of retracement has happened to many companies SP's in the past after similar disappointment.

One thing I found puzzling about the DNX statement this morning was that KNOC are aware of non-public information that raises the value of DNX. If this info is not in the public domain then should KNOC be aware of it at this stage? From a legal standpoint I would have thought not. All just smacks of DNX rejecting the offer based on 'we're worth more than that!'.

I still find the price action strange though and suggests a high likelyhood that KNOC will walk, at least in the eyes of the market which one rails against at ones peril. Any history of KNOC that suggests walking is this likely?

fwiw I flogged my DNX a few days ago (my normal modus operandi on offer-outed value) at £17-11 and am now considering repurchase.

lfc (pleased to be back on Stocko now that major computer incompatability issues seem to have resolved :-))

sirlurkalot

12th Aug '10

"What is your view on why all these hedgies were piling in at around £17?"

Mark,

Not sure. Perhaps they misjudged things and reckoned KNOC was keener and more willing to pay £19+ than Dana's statement suggests? We aren't currently seeing the whole picture so I hesitate to give a confident answer.

This statement seems written specifically for the guys in Schroders who told them to negotiate. What will Schroders etc make of it? I suspect the institutions who wanted negotiations would today be more than willing to sell to a hostile £18 bid if that appeared, as of course would the recent arbing hedgies, so that's an easy 30-40% of the shares quickly obtainable by £18 hostile. If it is true that "KNOC communicated that it would be unwilling to increase the level of its Proposal regardless of any new information it may be given" then this really just comes down to whether KNOC want to go hostile at £18 without additional due diligence, and KNOC seem to have indicated that they don't want to. The KNOC behaviour described IMO doesn't tie in with a bidder willing to cooperate and negotiate a slightly higher recommended offer, but of course maybe KNOC aren't being accurately described.

I think the odds now appear to be maybe 60% back to whatever lower price the shares would settle at if KNOC disappeared, and 40% a hostile £18. How likely does anyone else think an offer increased above £18 is?

djpreston

12th Aug '10

I see that the spike to 1600p seems to have been driven by a report on Reuters quoting "sources":

Korea National Oil Corp (KNOC)
is still committed to bidding for Dana Petroleum
, a source close to KNOC said, after the UK-based oil
explorer said earlier on Thursday that talks had stalled.
KNOC has not walked away, the source said, despite refusing
to sign a confidentiality agreement before the Dana board
recommended its 1,800 pence/share bid.

emptyend

12th Aug '10

It doesn't make sense for KNOC to refuse to sign a non-disclosure agreement in order to do due diligence, instead requiring a recommendation before DD - there's something we're not being told here.

I don't think you are right on that. We are plainly looking at a battle of wills:

The KNOC side (no doubt advised by Merrill) thinks that the institutions will roll over at £18, irrespective of anything new that actually happens in the business. They therefore don't want to shut off the option of going hostile at £18 and they certainly don't want to start DD because they know for sure that Cross won't recommend the deal unless the price is raised....hence the evident standoff.

At the end of the day, it seems likely to come down to whether the institutions are happy to sell Cross out at £18 or not....even if Anne Marie comes in. Some have clearly said that they would - in which case going round to get commitments from them would seem a credible strategy....

.....but that doesn't mean that it will succeed - and by apparently digging their heels in on price, KNOC are reducing the chances of them bidding successfully.

I see reports that KNOC have just made a big find in Iraq (though press reports are rather...deliberately?....vague on the subject) - perhaps this may have had a bearing on the apparent haitus in recent days and a failure to sign the NDA promptly?

kenobi

12th Aug '10

Are knoc barred from buying in the market themselves because of their approach ?

If not why would they not start accumilating shares at these prices ?

seems to me the only reason not to is in order to leave themselves open to walking away. let the instos take the risk and potential profit.

I guess if word got out that knoc were buying the price would sky rocket anyway, leaving them paying high prices anyway and making it hard to walk away,

I guess this way their "proxies" are buying up shares, making a deal ever more likely,

K

extrader

12th Aug '10

Hi Darron,

If/when KNOC give their reply/rebuttal to DNX's RNS, how would you expect them to do it ? They're not UK-listed, so don't think they can 'RNS'.....do we PI's get to hear about it on the news (Reuters, Dow Jones, Bloomberg etc) - or from Some Kind Person such as your goodself on this board....?

TIA

djpreston

12th Aug '10

extrader

IIRC, KNOC issued a statement on the bid approach before. No problem whatsoever in issuing an RNS.

As to timings, Id imagine that it would be in the afternoon, given the Canadian link. Maybe not today or tomorrow but Monday latest (to allow a weekend of "negotiations").

I suspect that there wont be any shortage of people who will post up the news.

Some interesting analcyst comments around today . More later.

sirlurkalot

12th Aug '10

"The KNOC side (no doubt advised by Merrill) thinks that the institutions will roll over at £18, irrespective of anything new that actually happens in the business"
Agreed.

"At the end of the day, it seems likely to come down to whether the institutions are happy to sell Cross out at £18 or not....even if Anne Marie comes in"
Yes, I think they would even if AM comes in. IMO the key imponderable is whether KNOC wants to go hostile at £18, which Darron's Reuters sources suggest they would. It would be logical for someone to go around to Schroders' office to clarify what they'd do with a £18 hostile bid, but IMO the answer to that is pretty clear. If KNOC wants to go hostile at £18 then IMO that's as good as a done deal.

djpreston

12th Aug '10

Ah, meeting just cancelled.

Seen some comments and the one that stands out the most is......

Evolution - Sell rating with target of......wait for it....... 1050p. Even though their Core +risked NAV is 1554p.

Citi - fence sitting with their "Hold" PT 1655p and a fundamental risked NAV of 1511p.

Deutsche - still a hold with a target of (non deal) 1240p

sirlurkalot

12th Aug '10

"Deutsche - still a hold with a target of (non deal) 1240p"

Darron,

Of those three the interesting one is Deutsche because they're prime broker to lots of hedge funds. The 1240p is a non-deal level. Is there any hint in Deutsche's text of what action they actually recommend right now?

oilretire

12th Aug '10

They're not UK-listed, so don't think they can 'RNS'.

KNOC can & does release RNS statements, the original approach on the 2nd July

http://www.investegate.co.uk/Article.aspx?id=201007021023357249O

and they updated the market on the 23rd....

http://www.investegate.co.uk/Article.aspx?id=201007231409448474P

AnonymousUser858

12th Aug '10

I'm in remote mountain country abroad with poor telecomms so this is my first time online since the weekend - I like the robust counter-attacking style of this morning's rns from Dana - can't see why SirL judges it as he does - the fact that Cross & Goodall flew to Calgary to meet KNOC at their convenience and have offered to fly to Korea surely is much to their credit? And the fact that they are insisting on a NDA before allowing access for DD is surely entirely reasonable? How can those facts be reconciled with the idea that dana is being unreasonable/intransigent?

The content of this morning's rns is exactly what I would want - why would Dana throw in all the itemised assets/value for free?

Some of the comments in the press and here imply that KNOC is entitled to dictate terms without the agreement of their target. Well cobblers to that as far as I am concerned. As a very long term shareholder I am delighted to see Cross et al mounting a very sturdy defence. I am heartened by it. I will be very happy if the KNOC bid fails.

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DANA takeover bid - KNOC makes preliminary approach.

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Hannibal

847 comments

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