DANA takeover bid - KNOC makes preliminary approach.

In reply to EdmondJ, post #247

If SOCO's shareholder structure was similar to that of Dana then I'd say they too would have been vulnerable to an unwelcome bid by now, possibly succumbing to a low price relative to the potential upside.

When it actually comes to SOCO's turn, I expect we'll be having the same debate but it'll be a done deal anyway, so debate will be academic ;-)

Can we be certain that nothing has ever been attributed to explo in E&P M&A? Surely its equally possible that a reasonable value has been attributed to explo and a lower $/bbl used for the production, at least in a respectable fraction of E&P M&A? [I won't dispute that a few transactions can be found in which clearly nothing has been paid for explo]. How do we know a would-be acquiror of Dana isn't wanting the explo but using a lower $/bbl for production?

I would attribute a say 40% chance to the possibility that KNOC, in the absence of TC agreement, just go hostile at £18. So I'm at 20% £14, 40% £18 and 40% £19.50, so expected outcome ~£17.80, only 4% to go for. I doubt top board-level management staying is all that important to KNOC. There doesn't seem to be much competition or white knights appearing, so I'm wondering why KNOC need to increase their bid, unless time passes and AM has already succeeded.

A spinoff of say the WoS licences might make sense for Dana, but it doesn't necessarily suit the business model of Faroe to take them on in their current state. Faroe have preferred to get new licences, work them up to drill readiness and then farm down for drilling. I can't really see such a spinoff happening soon.

In reply to tournesol, post #233

Probably running the risk of being a bit harsh here but

What would be interesting would be the idea of TC using Parkmead (PMG) as a platform.

<snigger mode on> Looking at the parkmead website http://www.parkmeadgroup.com/parkmeadgroup/

it seems Tom is almost already there.....judjing by the abundance of visible information for investors (II's or PI's).

Tom to Website Manager: "any chance we can get rid of this "Investor Relations" section....far too much detail there....oh, and what's all this "News" section all about? Dump it....let them come to Aberdeen (at tremendous cost) and find out ....etc"

<snigger mode off>

If it wasn't for the informative dissemination style posts/research carried out by PI's on Fool/ADVFN/Stockodedia then I 'd have to say this would have been a share I wouldn't bother with...so whilst critical of TC's style of easily accessible IR to all, am very grateful to PI's/posters whose work has helped me de-fathom Dana.

JPGH - still holding tight for £18.50.

In reply to davjo, post #246

How does $12.16 compare with £18/sh, bearing in mind Egyptian reserves will be worth a good deal less than N.Sea stuff?

Well that's the point, dj. I worked out a few weeks back (after some correction fromMarben re the debt.....and IIRC, because I can't remember where the figures were posted* or precisely what they were) that a bid at £20 would be equivalent to about $12.50 a barrel. I've certainly seen broker numbers recently suggesting that £18 would be c. $12 a barrel.

Dana would have 254mn boe 2P after the Dutch deal....of which only 42mn boe would be in Egypt.

Given that the "going rate" for takeovers is in the $12+ per 2P barrel, and that Dana's explo portfolio is much better/bigger than most, why would $13....or even $14 per 2P boe be beyond the bounds of possibility?

Even the recent Stratic takeover by Enquest was based on $11.20 per 2P barrel net of tax and, AFAIAA, they don't have much of an explo/development pipeline......oh yes.....and Enquest paid a 70% premium there too (70% in Dana's case would be about £20).

Anyway - there is no point in arging the toss at this juncture. I expect that the weekend's events will speak for themselves.

rgds

ee

*ps...the original post was here in which I worked out that £20 a share would be $12.85 per 2P boe, after allowing for debt  (though I haven't adjusted for tax and other things that may have an influence).....which seems to be perfectly reasonable to me!

In reply to davjo, post #246

davjo said

"...The recent Petro Canada acquisition is an example. ...I don't recall Dana PIs complaining that $12.16/boe was overpaying in what must have effectively been an auction..."

surely there is a rather material difference between the two cases

AIUI Petro Canada needed/wanted to sell - so an eager seller

Dana in contrast has not invited bids - so its the buyer who's eager

makes all the difference

Just a further point on the upside/incentive that I agree KNOC would be looking for in the deal. ISTM that there is plenty of upside in the Barbara/Phyllis & "Western Isles" developments, due to come on-stream in 2012/13 onwards and from the recent discoveries in Egypt.

Together, these can raise Dana's production significantly beyond the current 50kboepd.

Cheers,

Mark

For the record, my strong personal feelings are that I hope the bid fails. This has nothing at all to do with sentiment or emotional attachment.

I feel like someone threatened with a compulsory purchase order. Somebody else has decided that I'm going to have to sell AND they get to decide how much I'm forced to sell for. Now that sticks in my throat.

I prefer a) NOT to be forced to sell and b) to make my own mind up as to what price I'm prepared to accept.

I understand perfectly well that this is not how things work in the stock-market but that doesn;t mean I have to like it......

In reply to tournesol, post #254

I understand perfectly well that this is not how things work in the stock-market but that doesn;t mean I have to like it......

Sure, but one might argue if you don't like it don't play it.

In reply to emptyend, post #251

the original post was here in which I worked out that £20 a share would be $12.85 per 2P boe

OK, thanks. Updating your numbers by adjusting the latest FX rate of £1:$1.59 and adding 1m options/LTIP awards, I make £20/sh = $13.47/boe, £19/sh is $12.88/boe and £18/sh is $12.30/boe. All academic but enlightening all the same ;-)

The crux of negotiations now obviously falls on whether the parties can agree a recommended offer. IIRC, recommended offers normally carry a commanding slug of institutional shareholders who commit to the deal with a get out clause allowing a counterbid which must exceed the offer price by a minimum 10%. On that basis, does Dana enter an agreement at £18 in the hope of a £19.80 counter? or do they refuse, leaving KNOC to go hostile and risk no counter offer? Alternatively, do KNOC put say £18.50 on the table to encourage Dana to accept, pushing out potential counter offers to £20.35?

I'd say we're most likely to see a recommended offer at £18.50 max.

We shouldn't be too far off the exciting stage when all will be revealed :-)

In reply to tournesol, post #252

Dana in contrast has not invited bids - so its the buyer who's eager

Not from where Shroders et al are sitting :-)

Indeed Davjo and nice to see you in line with my own thoughts (though always happy to be proven wrong with a higher price).

Thing is, there are other stocks out there that looks just as attractive with more upside imo. Could I see say 25% on bnk? Easily imo. Could I see 25% on soco, or cop, or pci, or...... before we see 25% gain on dnx ie 2250p? Sure I can.....

Dnx will be decided this week imo. Still sticking with recommended off 5% max more than the current offer maybe samething in the 1900s.

Likewise Tullow (TLW) and BP (BP.) in the FTSE 100 index - and 'son of Dana', Faroe Petroleum, on AIM.

Plenty to engage the mind as Dana comes to a climax. (Oops!)

Plenty to engage the mind as Dana comes to a climax. (Oops!)

A prerequisite to which TC needs to loosen her chastity belt first ;-)

Usual Evo propaganda from the Telegraph today:

http://www.telegraph.co.uk/finance/newsbysector/epic/dnx/7931123/Dana-meets-South-Koreaans-over-1.7bn-offer-for-company.html

"Consensus among City analysts is that the Koreans' offer is a good price.
"We a see a considerable risk that the share price rattles back to £10 to £11 if the offer does not emerge," said analysts from Evolution Securities, putting a sell rating on the stock.

...I'm quaking in my boots.

I'm getting my wheel barrow ready in case the offers fades and they do indeed rattle back to £10 to £11.

Probability of that happening however is extremely low imv.

Having seen this sort of deal before, the only way I can put the pieces together - including TX's ambitions and Dana's extreme reluctance to engage with KNOC - IMHO I would imagine that Dana recognise that they are now 'in play' and have quietly opened negotiations with somebody else. KNOC's offer has become a stalking horse for a slightly better price.

In reply to davjo, post #256

IIRC, recommended offers normally carry a commanding slug of institutional shareholders who commit to the deal with a get out clause allowing a counterbid which must exceed the offer price by a minimum 10%. On that basis, does Dana enter an agreement at £18 in the hope of a £19.80 counter? or do they refuse, leaving KNOC to go hostile and risk no counter offer? Alternatively, do KNOC put say £18.50 on the table to encourage Dana to accept, pushing out potential counter offers to £20.35?

The missing link here is Anne Marie. One of the reasons why I think KNOC will end up in the £19.20-£19.50 range for an agreed bid is the 10% hurdle (which would push the price of a counter to over £21)....which might be enough to stop counters even in the event that Anne Marie comes in. The other factor is that on Goldman's analysis (ex Anne Marie upside) Dana's NAV is £21 already....if you were a NOC with a low cost of funding, I'd strongly suggest that your internal estimate of value would be a helluvalot closer to Goldman's estimate (possibly even above it!) than it would be to the City scribblers'  estimates that assume the same round number discount rates that they were using before interest rates plummetted (viz....10%).

The price KNOC will pay for a recommended deal will be the minimum price that they think they can get away with without the risk of a counterbid in the event of Anne Marie success.....because if they bid, say, £19 and someone tops them the day after an Anne Marie success with a bid of £21, then they would likely be into a bidding war that could leave them bidding £22+ and STILL risking not closing the deal out! Much better to pay 120-150p more than they had hoped to pay and get the commitments and board recommendation, rather than risking paying another £2-3 on top because they'd been too aggressive in trying to get Dana on the cheap.

ee

In reply to emptyend, post #264

Evening ee

The price KNOC will pay for a recommended deal will be the minimum price that they think they can get away with without the risk of a counterbid in the event of Anne Marie success

With respect, the view that Anne Marie is uppermost in KNOC's mind when striking a price is mistaken imo. The facts of Anne Marie AIUI are 2P estimated reserves of 22.5mmbbls net to Dana and 30% CoS. Of course, a single successful explo well can only reasonably be expected to de-risk the estimated reserves, not prove them up. Since there's a 70% chance of a duster, I fail to see how this well can have any significance in KNOC's reasoning as to what price they settle on.

As to the possibilty of a counter, I can only think of one example in the last 15 years in the UK E&P sector where this has happened and that was the Hess recommended offer of 180p for Lasmo countered by ENI at 200p. Odds for a counter aren't good imo. If one comes though, jumping the gun a bit, that would be a fabulous boost, most welcome to the sector :-)

Hi davjo,

Re DNX and AM, you say

".......... a single successful explo well can only reasonably be expected to de-risk the estimated reserves, not prove them up. ......"

which seems realistic, if a bit disappointing.

At the risk of going O/T, could you help me understand why you're seemingly so much more bullish on the prospects for SIA and TGD, where surely a simiar situation applies ?

Is it that TGD is (a) much further down the 'proving up' road or (b) much larger in prospectivity or (c) the recognition that SIA's BoD and mgment are "the masters of their fate", whereas TC and BoD are not ?

TIA and apologies for the somewhat O/T

Yes I had a substantial position in LASMO, acquired as a takeover play some 12 months before the event, the experience of the patience needed there and the Goldman Sachs May note on Dana (highlighting takeover potential) kept me reslient to hold despite the twin slides to £10.

The tactical upshot being, perceived 'tortoises' in the sector may stand a decent chance of becoming bid targets and outperforming the 'hares' this way, on a medium-term view. Say Dana versus Tullow, in 2010.

Alright, a 70% chance on a duster for Anne Marie, however Graham Stewart seems particularly confident of this one and I would welcome a pro rata distribution of Dana's 27.5% stake in Faroe Petroleum - if a bid goes through!