Bitter battle for control of oil firm Faroe nears an end

● Shareholders urged by board to accept new offer ● Previous bid had been branded ‘opportunistic’

Faroe Petroleum, the Aberdeen-based North Sea oil explorer and producer, has capitulated in the bitter takeover battle involving its largest shareholder.

Norwegian energy firm DNO said yesterday that it owns or has acceptances for just over 52.4 per cent of Faroe’s shares after upping its bid for the firm to some £640 million – or 160p a share, from 152p.

The takeover debacle has seen the Scots firm describe DNO’S advances as “opportunistic”, arguing it substantially undervalues the business.

Last week, Faroe hired industry experts at Gaffney, Cline & Associates to come up with their own valuation of the company, which concluded that its assets are valued in the range of 186p to 225p per share.

But Faroe’s board said yesterday that it now recommends shareholders accept the offer, although it reiterated that it does not believe it represents “fair value”.

“The board considers that, following its initial investment in Faroe and in the conduct of its subsequent offer, DNO has created considerable uncertainty for minority shareholders,” the firm noted.

“The board also notes that DNO has indicated that it expects to make changes to the Faroe board and the board therefore considers there to be no assurance that Faroe would continue to maintain its current corporate governance culture in line with UK corporate governance best practice.”

Faroe’s directors will now work with the Norwegian suitor to ensure an orderly transition of control.

Under the terms of its offer, DNO said that £53m of the proceeds will be payable to Faroe directors, management and employees, while the remainder will go to shareholders other than itself.

The group said its final offer price represents a 27.2 per cent premium to Faroe’s share price of 125.8p on 23 November, the day before the approach was made public.

In a note, Ashley Kelty and Jack Allardyce, oil and gas research analysts at Cantor Fitzgerald Europe, said: “Despite still believing that 152p was a fair price, it [DNO] has opted to increase the offer and close out the bid, noting that while not preferable, it would be comfortable with a minority position should the offer lapse without sufficient acceptances.

“DNO appears to be attempting to leverage recent weak newsflow (which, while disappointing, would reduce our valuation by less than 4 per cent combined on a likefor-like basis), and the (understandable) concerns of shareholders over the potential fall in share price should the offer lapse, in order to secure one of the best Uk-listed E&P companies at what would remain a bargain price, in our view.

“We maintain our ‘buy’ recommendation.”