Norway's DNO offers to buy Faroe Petroleum for £608m in cash

26th Nov 2018 07:52

(Sharecast News) - Norwegian oil and gas operator DNO has offered to buy London-listed Faroe Petroleum for 152p a share in cash, valuing the group at around £607.9m.The offer price represents a 44.8% premium to Faroe's share price on 3 April, which was the last business day before DNO announced its first acquisition of Faroe shares, and a 20.8% premium to the share price on Friday.DNO's executive chairman, Bijan Mossavar-Rahmani, said: "In the period between our first acquisition, triggering significant bid speculation, and this offer, the price of Brent crude has dropped 13% and oil and equity markets have entered a period of great uncertainty."For those shareholders who wish to exit, DNO is therefore offering a considerable premium."For those who wish to remain, there is no assurance of Faroe achieving its full value potential in a volatile commodity and financial markets environment as a relatively small scale, financially constrained UK-AIM listed company whose share price performance has remained stubbornly disappointing, with the very notable exception of short-term spikes following the sale of a particular large block of shares by one investor to another (most recently to DNO) and the attendant speculation about an impending takeover premium with each such transaction."Mossavar-Rahmani said Faroe's assets, the substantial part of which are Norwegian, are better placed "in the bosom of DNO", which is Norway's oldest independent oil and gas company. DNO currently operates gross production of 125,000 barrels a day, compared to Faroe's 7,500 barrels.Faroe Petroleum put out its own statement on Monday, noting that DNO did not engage with the company before making the announcement of its unilateral offer."The board of Faroe will meet together with its advisers to consider the offer and a further announcement will be made in due course," it said. "In the meantime, Faroe shareholders are strongly urged to take no action in relation to their Faroe shares."At 0940 GMT, Faroe shares were up 25% to 157p.Peel Hunt said: "We had felt that this was the most likely outcome at some point and that in terms of timing it would likely take place once the strong year-to-date share price rally and previous bid speculation had subdued."It is not surprise therefore that DNO has responded to the recent collapse in the oil price by attempting to take advantage of Faroe's current lower market value by making what we feel is an opportunistic offer that does not fully reflect the underlying asset value within the business."