DANA takeover bid - KNOC makes preliminary approach.

"How can those facts be reconciled with the idea that dana is being unreasonable/intransigent? "

I didn't say Dana was being unreasonable or intransigent. It's a robust defence RNS, quite reasonable in the circs, that presents a picture that doesn't quite add up in terms of KNOCs behaviour. Perfectly reasonable to insist on a NDA before allowing DD.

KNOC are described as not having much interest in negotiating, so the notion that KNOC can be talked up to 1950 or so seems IMO hopeful. IMO it's either £18 hostile or walk away time, and I'm split on which way KNOC will go on that one.

Dana have referred to various not-publicly-disclosed info on "significant, well advanced, non-public and valuable activities", and supposing KNOC walked and the SP dropped to £14 or below, TC might be under pressure to improve Dana's disclosure. It might appear that TC was deliberately holding info back in order to make analysis only fuzzy to prevent a bid, to preserve his own employment.

"Perfectly reasonable to insist on a NDA before allowing DD."

AFAICS the issue is not about signing the NDA, that's a given before due diligence, it's getting the price agreed. And in defence of KNOC it is normal practice to carry out due diligence after that agreement not before.

http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1074414003&type=RESOURCES

lfc

Hi lfc,

Thanks for the link. But it says :

"Don't start due diligence until you have agreed a price and terms with the buyer."

Which is DNX's position, no....... ?

In reply to sirlurkalot, post #328

Dana have referred to various not-publicly-disclosed info on "significant, well advanced, non-public and valuable activities", and supposing KNOC walked and the SP dropped to £14 or below, TC might be under pressure to improve Dana's disclosure. It might appear that TC was deliberately holding info back in order to make analysis only fuzzy to prevent a bid, to preserve his own employment.

I don't really buy into the notion that TC is motivated to keep Dana independent in order to carry on drawing his salary, since it seems to be predicated on the idea that following a deal he wouldn't be able to find work elsewhere on a similarly attractive package.  Given the value he has created at Dana I don't think that's likely to be true. 

Since every 50p on the sale price of Dana equates to about a million quid to TC, if he's actually solely motivated by maximising his short term financial benefit I would think he'd be trying hard to get a deal done at the best possible price, rather than to stubbornly keep Dana indepedent and his wealth tied up therein completely inaccessible.  With a deal done, in six months he could instead be sitting on a £20m+ bank balance (net of tax) and earning a similar salary somewhere else - if that's what he wants, which I doubt.

"Thanks for the link. But it says :

"Don't start due diligence until you have agreed a price and terms with the buyer."

Which is DNX's position, no....... ?"

I think 'agreed' means both parties have the same position ;-)

Amidst all the "sturm und drang", it is interesting to go back to basics...

Only one of today's analyst notes (that i have seen) shows how their valuation is arrived at, and that is the note from Citi. In that note it assigns base resources (excluding explo but including risked development & appraisal) of 269.4mmboe and arrives at an NPV/share for those of £14.11.

That's $7.7/boe.

On top of that, they assign 57.1mmboe for for risked explo, not included in the £14 figure.

I don't know how others feel, but I personally am very happy to acquire low-risk barrels @ $7.7/boe (though it doesn't look like that figure takes account of the PetroCanada related debt).

ISTM that a significant part of the problem (judging by the lack of response to my earlier question) is that Dana hasn' t released estimates for the upcoming major developments - and analyst income forecasts only stretch to a 2011/12 timeframe. During that timeframe Dana looks pretty unexciting with roughly flat production. It's beyond that that things get interesting.

That would make the shares interesting to me if they drop back below £14 - and is undoubtedly a big factor in driving KNOC's interest. This is the "golden goose" factor in Dana. If my assessment is correct, I do criticise Tom Cross for not getting the message across about the value of the upcoming developments, and it will have been his failure to get that message across that might result in a hostile offer succeeding at a price that doesn't give full value for Dana's likely potential, let alone explo upside.

I suspect that earnings in future years will be very substantial.

Mark

KNOC response

http://www.investegate.co.uk/article.aspx?id=201008121316119935Q&fe=1

In reply to StrollingMolby, post #334

Crucial words:

KNOC notes today's formal rejection by the Board of Dana of the indicative cash proposal by KNOC to acquire the Company at a price of 1,800 pence per share (the "Proposal")...

...The Proposal is no longer subject to the pre-conditions listed in the announcement made by KNOC on 23 July 2010. 

...and the preconditions were:

The Proposal is subject to a number of pre-conditions, including:

 

•           KNOC being granted access to carry out satisfactory due diligence;

 

•           the unanimous recommendation of the board of directors of Dana Petroleum; and

 

•           Dana Petroleum agreeing, on terms satisfactory to KNOC, to enter into an inducement fee (to be set at one per cent. of the fully diluted equity value of the offer).

 

KNOC reserves the right to waive any or all of the pre-conditions to the Proposal.

Sounds to me like a hostile offer is about to be launched, as KNOC no longer require Board recommendation nor due diligence.

Mark

Hostile bid maybe...

...but at what price now??

KNOC reserves the right to reduce the offer price of the Proposal in certain circumstances, as set out in the announcement by KNOC on 23 July 2010.

In reply to marben100, post #333

ISTM that a significant part of the problem (judging by the lack of response to my earlier question) is that Dana hasn' t released estimates for the upcoming major developments - and analyst income forecasts only stretch to a 2011/12 timeframe. During that timeframe Dana looks pretty unexciting with roughly flat production. It's beyond that that things get interesting.

Of course, if KNOC took up the invitation to sign a NDA, then they would be given access to all the information about production forecasts for those and other assets. As it stands, they are simply pretending that they have taken everything into account - and are obviously still hoping that the assorted cacophony of analyst opinions will confuse the institutions into selling out more cheaply than they should.

Instituions like Schroeders should listen to Dana's management on valuations and consider why KNOC are remaining keen despite the Dana rejection: They are remaining keen because Dana is too cheap at £18!

ee

PS: I think that answers my question about why the hedgies were buying at £17. They had received assurances that, if Dana's Board did not comply, KNOC would go hostile, and hence were confident that there would be a buyer for their shares above their purchase price.

I.E., mere tools of KNOC.

PPS good call with your purchase earlier today, djp: you're a braver man than I, Gunga Din. :0) [happy to merely hang on to my remaining holding]

In reply to RedTedsRoadshow, post #336

...but at what price now??

KNOC reserves the right to reduce the offer price of the Proposal in certain circumstances, as set out in the announcement by KNOC on 23 July 2010.

That line is just blatently there to scare people who are too lazy to look back on their earlier RNS, which said:

KNOC reserves the right to reduce the offer price of the Proposal in the event that:

•           Dana Petroleum announces, declares or pays a dividend or any other distribution to its shareholders, in which case there would be an equivalent reduction in KNOC's offer price;

•           the board of directors of Dana Petroleum recommends a lower level of consideration; or

•           a third party announces a firm intention to make an offer for Dana Petroleum.

None of those scenarios are at all likely to apply!

The more important bit is here:

KNOC is currently considering its options in relation to Dana and a further announcement will be made in due course.

....and those options include raising the price instead of either going hostile at £18 or walking away.

ee

I also observe that KNOC's actions in Calgary (or lack thereof), as reported by Dana and which KNOC have not refuted, look to me merely like a pretext on which to launch a hostile bid.

I strongly agree with ee that if they succeed with £18, they'll be getting Dana on the cheap, but I felt the same way about Centrica's offer for my Venture shares. ;0)

Whether they raise the £18 offer or not will depend on their and their advisor's assessment of the risk of their offer being trumped.

I expect TC will have been rather busy searching for white knights over the last few weeks. We'll soon find out whether he's found one.

Cheers,

Mark

In reply to marben100, post #341

I strongly agree with ee that if they succeed with £18, they'll be getting Dana on the cheap, but I felt the same way about Centrica's offer for my Venture shares. ;0)

Whether they raise the £18 offer or not will depend on their and their advisor's assessment of the risk of their offer being trumped.

I expect TC will have been rather busy searching for white knights over the last few weeks. We'll soon find out whether he's found one.

Yup. It will be a sad day for UK E&Ps if KNOC do manage to get DNX on the cheap at £18.

If I were a potential bidder (I hate the "white knight" expression in circumstances like these) for Dana though , I would be content just to sit back and keep my powder very dry indeed. There is no rush for a counterbidder if KNOC press on with £18....they can leave it until very late in the day - and then table their better bid just as Anne Marie gets to TD

........given the way KNOC have played this so far, I'd almost be encouraging them to stay at £18 or close to there - because a btter deal may then be more likely to emerge. 

They do, of course, still have the option of raising their bid and getting a recommendation - but if they do then presumably that will be done over the weekend.

My current assessment of odds is:

a) KNOC walk - no counterbid ........... 20%

b) KNOC go hostile at £18 and win....30%

c) KNOC go hostile at £18 and get topped.......25%

d) KNOC get a recommendation at 1930-50....25%

...still "all to play for"

ee

Welll thats a nice surprise to read when out to lunch with a client (he wanted to show off his new "toy").

Have to agree that the "we may lower out price" is probably there as a scare tactic (and the only thing keeping the SP down now). Unless they're feeling ballsy and want to try 1750p to get a recommendation at 1800p under pressure from the holders.

Nah, on balance I think that a hostile 1800p is now inevitable. The key question is if they will be able to get a lot of irrevocable agreements at that level and whether there is a counterparty sitting in the wings who would be prepared to pay 1980p+. That will depend on AM Id say, which is now within an offer timetable (unless KNOC manage to get 50% irrevocable before then).

If KNOC were intending to walk away, this prompt reply which doesn't really say much would look unnecessary and a bit odd, therefore IMO KNOC aren't likely to walk away at this point.  What is the point of this reply, actually, apart from propping up the Dana SP which isn't really in KNOC's interest?

"I expect TC will have been rather busy searching for white knights over the last few weeks"
Yes, but if there were a suitable one out there I suspect we'd have heard at least rumours of it by now.

"d) KNOC get a recommendation at 1930-50....25%"
I can't see that happening, KNOC don't seem likely to go above £18 now. I guess 2% chance of this unless AM succeeds in multiple zones within the timeframe.

"c) KNOC go hostile at £18 and get topped.......25%"
I suspect they'll go hostile at £18, but I think we'd have heard of a counterbidder by now so I rate this at only 3%, unless AM success.

"b) KNOC go hostile at £18 and win....30%"
IMO 60%

"a) KNOC walk - no counterbid ........... 20%"
IMO balance of 35%. This KNOC statement shifts me from 40: 60 to 60:35, which roughly reflects the shift in the SP this pm.

It seems time to raid the mkt to get as many sub-£18 shares as KNOC can, prior to the hostile bid.

In reply to sirlurkalot, post #344

I can see the logic of all of that, SirL, but I don't think you've attached enough weight to this para in KNOC's statement:

It has always been the desire of KNOC to agree a recommended transaction with the Board of Dana and KNOC is very disappointed that the Board of Dana does not agree that 1,800 pence per share represents a full and fair value for the Company. 

As I've said all along, I think that KNOC will need to pay up (to 1920-1950) to get a recommendation - and I think that Dana's board is perfectly prepared to give a recommendation......but ONLY if the price is a reasonable one in the circumstances.

IMO the deal is still do-able in the range I've been suggesting.....but that might not be the case if KNOC continue to dick about. They can of course press on with a bid at £18 without a recommendation.....and it might succeed (given what Schroeders and others have been saying).  But they also might find that AM comes up with the goods before they get to 50% .....or that a counterbidder takes a little more of a flier.

KNOC needs a deal ....and IMO it needs a recommendation. The recommendation is worth KNOC paying for - but there ARE other possible bidders who wouldn't need the recommendation or the management (because they already have them locally) ......and sticking at £18 merely opens the door to them and reduces KNOC's chances of sewing up Dana.

Still....all very interesting  ;-)  We'll probably have to wait until next week for another installment.

ee

In reply to emptyend, post #342

Hi ee,

If I were a potential bidder (I hate the "white knight" expression in circumstances like these) for Dana though , I would be content just to sit back and keep my powder very dry indeed. There is no rush for a counterbidder if KNOC press on with £18....they can leave it until very late in the day - and then table their better bid just as Anne Marie gets to TD

ISTM that the risk here is that KNOC could launch their offer as soon as tomorrow. It is conceivable that when they launch it they could simultaneously announce acceptances of more than 50%, from instos (inc Schroeders) and all the hedgies.

Could it all be over even before AM reaches TD? [let alone before log analysis which would surely be the absolute minimum necessary to impact an alteranative bidder's price level]

Mark

I'm a bit surprised the Dana camp hasn't made reference to a Merrill Lynch note within the last year or so, that has targeted significantly in excess of £18 a share - although I don't recall the specifics including oil price assumptions. Maybe a reminder to keep not delete broker notes!

Now that Merill will of course have been behind this:

"It has always been the desire of KNOC to agree a recommended transaction with
the Board of Dana and KNOC is very disappointed that the Board of Dana does not
agree that 1,800 pence per share represents a full and fair value for the
Company.

KNOC's view on value is based on a very detailed analysis of Dana and takes into
account all of the information available to it, including the Company's recent
operational and corporate transaction announcements."

Does anyone recall what Merrill has previously estimated by way of fair value?

I'm pretty certain they have previously gone for £18+ although when and with what oil price assumptions?

Could be a compelling info battle ahead!