Faroe Fights DNO Offer With $1.1 Billion Valuation Report

(Bloomberg) -- Faroe Petroleum Plc said its value far surpasses a bid by DNO ASA, citing an independent assessment in a last-ditch effort to persuade shareholders to reject the hostile offer just hours before the deadline.

A report prepared by Gaffney, Cline & Associates Inc. concludes that the U.K. oil company is worth $879 million to $1.076 billion, exceeding the $723 million valuation implied by DNO's offer of 152 pence a share, Faroe said Wednesday. It's a response to repeated criticism from DNO, which is seeking full control after amassing a 30 percent stake.

Shareholders have an initial deadline of 1 p.m. London time to accept the offer from Oslo-based DNO, which last week called for an independent valuation assessment as it urged investors to take into account the recent slump in oil prices when considering its bid.

The two companies have engaged in a heated war of words over the past few months, which kicked off after DNO had to abandon an effort to get seats on Faroe's board. In criticizing Faroe's corporate-governance culture, share performance, operational abilities and deal-making, DNO hasn't endeared itself to the company's management, which again advised investors to snub the bid on Wednesday.

“GCA's independent valuation clearly supports our view that DNO's offer substantially undervalues Faroe,” Chairman John Bentley said in a statement.

Shares Fall

Faroe said the report assessed the value of its assets as of Sept. 30, but accounted for the decline in oil prices since then. It also reflected the results of the Brasse East exploration well off Norway -- announced Wednesday -- which found no hydrocarbons. It didn't include an asset swap agreed with Equinor ASA, which has been criticized by DNO.

Faroe fell as much as 4.4 percent to 140.6 pence in London trading, near the lowest level since DNO announced its offer on Nov. 26, and was at 145 pence as of 9:20 a.m. local time. DNO dropped 1.2 percent in Oslo.

If DNO's offer doesn't reach the acceptance level of 57.5 percent -- including its own stake -- to become unconditional, the company can choose to extend. It would then have until Jan. 27 to improve the bid if it wanted to, and until Feb. 10 to get the necessary acceptances.

The retreat of oil prices and the stock-market rout of recent months might make it a closer call than earlier expected, according to SpareBank 1 Markets analyst Teodor Sveen Nilsen, who covers both companies and had previously predicted DNO would have to increase its offer to between 170 and 180 pence to be successful.

“As equity valuations move, so do probabilities,” he said in an emailed note to clients. “The chance for DNO to gain control over Faroe is higher now compared to when the offer was launched.”

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Amanda Jordan, Helen Robertson

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