DNO bid undervalues Faroe by 48 per cent company claims

Faroe Petroleum has said a hostile bid from its biggest shareholder DNO undervalues the company by up to 48 per cent as the offer period is set to end today.

DNO, which values Faroe at around £608m, offered 152p per share for the company in late November, giving shareholders until today to accept the bid.

Faroe has resisted the offer, saying it “substantially undervalues” the business.

A new report from consultants Gaffney, Cline & Associates, released by the Faroe board, has valued the business at between $879m and $1.08bn, implying a share price of 186p to 225p.

The analysis was started in September before DNO filed its bid but has been updated to reflect lower oil prices, Faroe said.

Without the fluctuation in oil, with the price of Brent crude falling around 60 per cent since highs in early October, GCA valued the business at $1bn to $1.2bn.

However, the calculations do not account for an asset swap with Equinor announced last month.

DNO is expected to make a statement on the bid by the start of play tomorrow. It has not yet responded to Faroe’s announcement.

Arden Partners analyst Daniel Slater said if shareholders turn down DNO’s bid it may offer more than 152p per share. But a rejected bid could also tempt another bidder to table a more generous offer.

DNO is likely to hold onto its shares even if it decides to walk away from the deal, Slater said.

“In this case, we consider it unlikely DNO would become a seller, as if they are keen enough on Faroe to bid, they are likely to believe they will make money as a holder, and it preserves the potential to make another bid (or profit from a rival bid) in the future,” he said.

The news came as Faroe announced a mixed bag from the its exploration well Brasse East. Drilling found one well which was full of water, but an appraisal well produced successful results.

Slater said: “This is a mixed result. It would have been good to make a discovery at Brasse East, as development of this could have been expedited via incorporation in the wider Brasse development.

“The Brasse appraisal result is reassuring, however, and it will have been efficient to tie Brasse East exploration and Brasse appraisal together in the one well.”

Faroe dropped 2.86 per cent to 142.8p on the exchange this morning.