Faroe Brands DNO Offer "Cheap, Opportunistic"

Faroe Petroleum’s board has said Oslo-listed rival DNO’s takeover offer “seeks to exploit the recent oil price fall to acquire Faroe on the cheap” and urged its shareholders to take no action.

Within hours of the formal offer published earlier on December 12, Faroe non-executive chairman John Bentley said: “DNO’s highly opportunistic offer is not only at a substantial discount to the value of the company but also at a substantial discount to comparable portfolio transactions and a substantial discount to the average of all UK takeovers in the last ten years.”

Faroe said DNO’s offer price of £1.52 ($1.91) per Faroe share is a premium of only 21% to the closing share price prior to the original Nov.26 announcement, about half the average premium paid on all UK takeovers over the last decade, and at a premium of just 1% to Faroe’s three-month volume-weighted average share price of 151p/share as at November 23. It also ignored Faroe management’s proven track record, a recent swap with Equinor, and one of the “best exploration track records on the Norwegian continental shelf” with two commercial discoveries made from three exploration wells drilled in the last 12 months: Iris/Hades and Agar, with Iris/Hades one of the world’s largest discoveries in 2018. The offer also overlooked Faroe’s acquisition of E&P assets from Dong in 2016 that boosted Faroe’s production base around Ula, it added.

DNO CEO Bijan Mossavar-Rahmani earlier Dec.12 said its offer was a "rare opportunity" for Faroe shareholders to "exit their relatively illiquid" positions at an "attractive price in a volatile and uncertain market for oil and equities." Oslo-listed but UAE-owned RAK Petroleum is the largest shareholder in DNO, with a 40.45% equity stake.

But Faroe countered: “The board believes DNO’s criticisms of Faroe are unfounded and purely a tactic to distract from the simple fact that its offer substantially undervalues the company."

DNO owns 28.7% of Faroe Petroleum. Analyst Malcolm Graham-Wood said earlier that Faroe has "an impressive list" of [other] shareholders to whom it must get its message across.