The merger between Norwegian exploration and production firm DNO and the UAE’s RAK Petroleum continues to divide DNO shareholders, despite a deal being struck to progress the deal at an extraordinary shareholders’ meeting on 1 November.
DNO’s former chairman Berge Gerdt Larsen, via oil services firm Petrolia of which he is chairman and majority shareholder, has offered to purchase up to a third of DNO’s shares at NOK 10 ($1.78) a share in a bid to block the merger with RAK which Larsen says overvalues RAK’s assets.
The DNO/RAK merger deal values RAK’s MENA units at $250 million and DNO at $1.64 billion, corresponding to NOK 9.50 ($1.69) per share.
According to a Petrolia statement, Larsen would then seek to achieve a minimum price of NOK 12 ($2.14) a share by selling or reorganizing the company.
Tony Hayward, the new CEO of Genel Energy, has recently expressed an interest in DNO, post-RAK merger.
“The offer from Petrolia Invest AS represents a significant premium to the latest share prices of DNO of NOK [6-7] per share,” Petrolia said in a statement on 7 November. “This depressed DNO share price reflects the negative view by the stock market of the merger proposal and the effective hostile related party takeover attempt by RAK Petroleum. When the merger negotiations started in February 2011 the DNO share price was above NOK 10 per share.”
Following the statement DNO’s share price rose to NOK 7.385 on the Oslo bourse following the statement, its highest intraday price in almost five months.
DNO’s Executive Chairman and Chairman and CEO of RAK Bijan Mossavar-Rahmani hit back in a strongly-worded statement.
“We fail to see how the offer can be taken seriously,” said Mossavar-Rahmani. “The Petrolia shares offered in exchange for the DNO shares are almost worthless and illiquid and Petrolia has not given any indication of the relative value of the DNO shares and the Petrolia shares, the implications of being locked in as a minority shareholder in Petrolia for an unspecified period of time or how Petrolia will be able to maximize the value of DNO by controlling up to one-third of the DNO shares.”
Mossavar-Rahmani accuses Petrolia of “misusing information and misleading the market,” and says DNO “will notify the Oslo Stock Exchange and the Norwegian FSA (Finanstilsynet) and request an investigation of Petrolia and related companies and individuals for market manipulation and breach of conduct of business rules.”
Petrolia has not yet responded to DNO’s statement, and is reportedly considering its legal options ahead of the completion of the deal slated for the first half of 2012.
Larsen was replaced by Mossavar-Rahmani in June and DNO has since severed all ties with Larsen and his associated businesses.
Analysts have counseled shareholders to avoid the Petrolia offer, with ABG Sundal Collier Holding, putting a post-merger target price of NOK 7.50 ($1.33) a share against the enlarged DNO.
Anders Holte, an analyst at Norwegian investment bank ABG Sundal Collier Holding, said in an advisory note that Perolia’s offer is “a last attempt to derail the ongoing merger with RAK Petroleum and as such doubt the future value creation for DNO shareholders through owning Petrolia shares.”
DNO holds significant interests in the Kurdish region of Iraq, having been the first company to sign a production sharing contract (PSC) with the regional government and the first company to export oil. The company’s revenues are currently hampered by the political wrangling over the status of Kurdish PSCs which is forcing DNO to either sell oil abroad on credit or sell to the Kurdish market at rates around 50% below export prices.
