Korea Oil makes $2.9b hostile bid for Dana Petroleum
Seoul gave KNOC a $6.5 billion warchest this year to compete with energy-hungry Asian state firms aiming to secure future supplies for their growing economies. Chinese and other firms have so far outgunned KNOC in bigger M&A battles.
The biggest hostile bid by a South Korean firm comes after Dana’s management earlier this month rejected KNOC’s 1,800 pence per share proposal.
Friday’s hostile bid by KNOC valued Dana at roughly 1.87 billion sterling ($2.91 billion).
KNOC said it had already secured the support of 48.6 percent of Dana shareholders but needs the backing of 75 percent for the deal to go through.
The offer represents a premium of 59 percent to the closing price of Dana shares on June 30, the day before Dana said it had received an approach.
Some investors believe Dana’s reluctance to accept what most analysts have described as a generous bid is partly related to Chief Executive Tom Cross’s close ties to the company.
KNOC said it had no alternative but to take its offer to shareholders.
“We are 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 senior executive vice president Kim Seong-hoo said in a statement.
The deal would top the purchase by KNOC, which explores and stores oil, of Canada’s Harvest Energy in October for $1.7 billion.
Analysts saw a bid as positive for South Korea and KNOC.
“This shows the will of the South Korean government, which has been trying hard to boost its presence in global resource markets, and we consider it positively,” Sean Hwang, head of the research team at Mirae Asset Securities, said before KNOC’s confirmation of the bid.
Dana said last week it had ended takeover talks with KNOC after the Korean firm declined to sign an agreement that Dana sought before opening its books to KNOC. But KNOC said it was still eyeing the British firm.
The North Sea and Egypt-focused explorer had said it would only let KNOC conduct due diligence, which could have led to a higher offer, if KNOC signed a non-disclosure agreement that investors said typically include clauses which would preclude KNOC from later making a hostile bid.
Shares in Dana closed at 1,711.71 pence on Thursday.
At 18 pounds per share, the deal represents an enterprise value of around $12 per barrels of oil equivalent, not so high compared with historical multiples, but Dana’s portfolio does not warrant such a value, analysts have said.
Dana’s top institutional investors, including Schroders, BlackRock and JPMorgan Asset Management, had urged Dana to engage in talks, according to media reports, as its defenses have been slipping, with shares trading well below the bid price.
The growing conviction that KNOC was committed to a takeover encouraged hedge funds to continue buying Dana shares in the past week.
Seoul gave KNOC the warchest with orders to raise the nation’s production capacity to 300,000 barrels per day (bpd) by 2012 from 130,000 bpd in December.
A deal with Dana would also help KNOC address perceptions of being a timid buyer, created after its failure to conclude deals in recent years.
Competition for resources among Asian nations has been intense.
Chinese and Malaysian state energy giants were big winners when Iraq opened up its massive oil reserves to foreign players in auctions last year, while KNOC was effectively barred from the competition.
For energy and resource-poor South Korea, the effects of competition have been harsh. China’s largest oil refiner Sinopec
outbid KNOC for UK-listed Addax Petroleum in 2009. Italy’s ENI
trumped KNOC to snap up UK-based Burren Energy in 2007.
KNOC chief executive Kang Young-won, who spent more than three decades with now defunct Daewoo Group, is best known for hitting the jackpot with a $5.6 billion Myanmar gas development deal which he helped Daewoo International win while serving as its CEO until 2008.
After moving to KNOC, he has been scouring the world to boost oil reserves, adding Harvest Energy and a $335 million buy of Kazakh oil developer Sumbe to its assets.
“While state-run firms have been regarded as a conservative investor, KNOC is now about to make a meaningful step through this bold takeover bid,” said Hwang of Mirae Asset.