DNO Will Have to Pay Up for Faroe: Analyst

Faroe shareholder DNO has underbid for Faroe by almost a quarter with its £1.52 ($1.94)/share offer, said Cantor Fitzgerald in a marketing note November 27. This is a premium of just 20.8% to the closing price on the previous trading day, November 23.

Faroe said November 26 that the bid undervalued it on every applicable metric.

Cantor's revaluation of Faroe, taking account of the Agar/Plantain discovery, is now at £1.95, it said. "While a takeover now ultimately appears inevitable, in our view DNO has taken advantage of the recent oil price weakness in order to attempt to acquire the company on the cheap, and we are of the opinion that investors should seek significantly more value for one of the sector’s finest stocks. We maintain our BUY recommendation," it said.

The offer will be funded from DNO’s existing cash resources, which stood at $640mn at the end of September. Buying the remaining shares would set DNO back £443.8mn. DNO notes that should the transaction complete, it would seek to change the composition of Faroe’s board, as per its previous attempt to requisition an extraordinary general meeting, citing corporate governance concerns; and that it may be required to combine the two companies’ Norwegian subsidiaries under state regulations. Should the offer become unconditional and DNO acquire over 75% of the voting rights, then it would seek cancellation of Faroe's AIM listing.