Faroe Petroleum is stepping up efforts to convince shareholders to snub a hostile takeover offer from Norwegian firm DNO.
Aberdeen-headquartered Faroe, which today sent out a “response circular” document offering guidance to investors, described the bid of 1.52p per share as an opportunistic attempt to capitalise on the low oil price.
Faroe said the proposal represented a discount of 45% compared to the average price paid recently for similar North Sea portfolios.
Company bosses also said the bid was tabled prior to the announcement of Faroe’s asset swap deal with Equinor, which is expected to deliver £96 million in cash flow over the next two years.
They said Oslo-based DNO’s offer should have been increased to reflect the benefits created by the Equinor transaction.
DNO recently described Faroe’s recent swap deal involving stakes in several Norwegian oilfields as further evidence of the firm’s “inability to capitalise fully on its assets”.
A war of words broke out between the two firms after DNO raised its equity in Faroe to 28% earlier this year, prompting speculation that a takeover was inevitable.
This month, DNO published its cash offer for the remaining shares in London-listed Faroe, and described the £444 million proposal as “full and fair”.
Faroe non-executive chairman John Bentley said today: “This offer is entirely opportunistic and that the terms fundamentally undervalue Faroe.
“We have one of the best exploration track records on the Norwegian Continental Shelf and are currently in the midst of the largest drilling campaign in Faroe’s history.
“We are fully funded to deliver our 35,000 boepd production target in the near-to-medium term and are confident in our ability to deliver in excess of 50,000 boepd in the medium term.
“As a result of the Equinor asset swap, we are now able to give careful consideration to the optimal mix of: reinvestment into the existing portfolio given the significant growth opportunities therein; pursuing value accretive M&A opportunities leveraging our reputation as a credible and reliable counterparty; and returning capital to shareholders.
“Your board unanimously recommends that you should reject the offer.”
Analysts at Cantor Fitzgerald said: “The document provides some more colour on the impact of the recent Equinor swap deal, which increases output by c60% in 2109 and adds £96m in incremental cashflow over the next two years.
“We find little fault in management’s arguments, and despite recent weakness in oil markets we continue to believe that shareholders should receive far better value for one of the sector’s most respected names.”