Minority shareholders of Dragon Oil have questioned ENOC’s offer price of GBP 4.55 per share, as the national oil company attempts to complete its acquisition of the firm.
ENOC announced earlier this week it had agreed to fully buy out Dragon Oil, but shareholders say the deal is far from complete.
“ENOC has made an offer on November 2 for all shares not owned by ENOC. The offer has yet to be voted on, and as it stands, does not reflect the true value of the company and is certainly not acceptable to me. Many other shareholders feel the same,” said Andy MacKay, a Dragon Oil shareholder.
“Dragon has accumulated a cash pile of nearly US$1 billion which has not been invested and looks like it will be used to pay for the acquisition,” MacKay added.
Fellow shareholder Ross Evans had similar gripes with Dragon. “Why did the company fail to take advantage of once in a lifetime acquisition opportunities during the financial crisis, a time during which it sat on nearly US$1 billion in cash?” Evans stated.
“ENOC’s holding in the company means that the cash is worth nearly GBP2.50 a share to them, so they are funding half the purchase of the company with money that should have been used for dividends or acquisitions, both of which would have significantly increased the share price.”
The offer price has been questioned by independent analysts. “We estimate that ENOC’s bid for Dragon Oil at GBP4.55 generates an overly generous 25% IRR for ENOC, excluding the additional benefit of accessing nearly a billion dollars of cash almost immediately for a cash outlay of US$1.9bn,” said analyst Peter Hutton from NCB stockbrokers.
Hutton went on to say that although ENOC does have a clear run at the company, should the deal fall through, it may then look to trade the existing share it has in Dragon Oil.
“ENOC does not bring operational, managerial or financial synergies to Dragon Oil that would be lost in the event of withdrawal. In fact, all ENOC brings is its existing 51.5% stake, a fact which gives it critical but not inevitable advantage, and for which investors would concede significant but not wildly excessive returns.”
“Dragon remains one of the cheapest E&P stocks in our coverage at the GBP4.55 offer price. We believe investors will be unwilling to relinquish their positions at such a discount, and the mechanics of the deal mean that those who see ENOC’s success as inevitable will be encouraged to hold out for fairer standalone value,” Hutton concluded.
