http://www.arabianoilandgas.com/article-6643-exclusive-enoc-reacts-to-dragon-offer-rejection/ (original source)

ENOC has declared itself a “committed long term majority shareholder in Dragon Oil” despite the firm having a bid rejected to buy out the remaining shares of the company.

The firm had its offer of 455p a share rejected at a London meeting this week and in a statement made to ArabianOilandGas.com, the firm revealed: “We acknowledge that the deal has not been voted through. We were confident of a successful outcome, particularly following the recommendation by the
Independent Committee. We also noted that RiskMetrics Group had recommended to shareholders to vote for the recommended transaction and offer price.”

ENOC also revealed the firm is not under pressure to sell its current shares in Dragon, despite the tough economic crisis. “The wider economic back-drop in Dubai has not affected our ability to complete this transaction,” it stated.

The government backed firm was also cagey about the prospects of another bid for the remaining Dragon Oil shares: “ENOC cannot comment as to whether or not it may entertain making an offer to acquire the outstanding shares in Dragon Oil.”

ENOC also refused to comment on its future expansion and acquisition plans.

http://www.ft.com/cms/s/0/f6a7707e-e2be-11de-b028-00144feab49a,s01=1.html (original source)

Enoc fears backlash from Dragon’s tail

By John Murray Brown

Published: December 7 2009 01:28 | Last updated: December 7 2009 01:28

The shareholders of a small Dublin-listed oil company will take a decision next week that could have big implications for Dubai’s debt crisis.

A special shareholder meeting in a Park Lane hotel on Friday of Dragon Oil, an oil and gas exploration company that is also listed in London, is voting to approve a takeover bid from the Emirates National Oil Company, which values Dragon at £2.3bn ($3.8bn).

Dragon

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Enoc, which already holds a 51.5 per cent stake, is offering 455p a share to buy out the minorities. It is financing its bid with $325m from the Emirates National Bank of Dubai and a further $1.1bn committed by Standard Chartered.

Under a scheme of arrangement, Enoc needs 75 per cent backing, rather than the 90 per cent applied under normal takeover rules. But with Enoc barred from voting with its own shares, brokers calculate just 12.2 per cent of the minorities could block the deal. In practice the threshold is likely to be even lower, given many shareholders will not vote at all.

“It’s far from being in the bag,” says Peter Hutton, analyst with NCB stockbrokers in Dublin.

When the offer was announced on November 2, the stock saw heavy buying by risk arbitrage funds who calculated it was likely to go through. But the discount to the offer price is widening now, suggesting investors are not so certain. On Friday the shares closed at 412.25p, up 5.25p on the day.

Baillie Gifford – the Edinburgh-based institution and after Enoc the next biggest shareholder – last Wednesday raised its stake to 4.4 per cent and rejected the offer as too low. Carmignac Gestion, a Paris-based long-only fund, and Noster Capital have also said the offer undervalues the company. It will be important how JPMorgan, with about 3 per cent, votes its shares.

However, Mr Hutton believes it could well come down to what he terms “the dragon’s tail”. This is the 55,000 small retail investors who together own close to 20 per cent of the equity. Many are Irish, dating from the days when the company was controlled and led by Ollie Waldron, a former Irish rugby international.

This, Mr Hutton suggests, is why the company is holding the meeting in London and not Dublin. “They’re placing a block in the way of the smaller Irish retail investors,” he says.

Enoc’s advisors are Standard Chartered and Goodbody stockbrokers. HSBC and Davy, which is broker to Dragon, are advising the independent directors, who back the deal.

The small shareholders are mobilising around a hastily launched website called Savedragon.com. Enoc for its part has retained Georgeson as proxy agents to inform small shareholders about the offer and urge them to use their votes.

“I’d hate to think of what Georgeson’s telephone bill looks like,” says Mr Hutton.

There is a strong operational logic for Enoc, which is essentially a refining company with a small 60,000 barrels a day production operation.

Dragon would give it access to potentially large upstream assets in a key developing region. Dragon is also sitting on about £1bn in cash on its balance sheet.

Mr Hutton believes the financial crisis in the emirate is hampering Enoc’s ability to offer a fair price.

But in the wake of news two weeks ago that Nakheel, another Dubai state-owned company had asked for a standstill on its debt, Mr Hutton says the takeover now is “all about Enoc’s need for cash”.

He adds: “This is what Enoc can afford to pay, not what these assets are worth. It is a take it or leave it choice and investors should leave it.”

NCB, the main independent broker covering the stock, has raised its long term price target to 805p, and believes a fairer take-out price would be about 650-700p.

Enoc has currently given an undertaking not to sell its stake until the end of 2011, but this was largely to reassure other investors it did not intend to “flip” the company in the event the bid was successful.

However, one consequence of that undertaking is that the company’s independent directors have not been able to consider alternative bids.

Mr Hutton says while Dubai’s creditors may feel it is right to pursue the takeover option – particularly as it gives Enoc access to the cash pile – attitudes may change.

“Lenders may start looking for Dubai to contribute to its own recovery by realising fungible assets where they can, ” he says.

In practice it would have been difficult to mount a hostile bid.

But in the wake of a failed takeover “an approach could be portrayed as supportive, rather than hostile, helping Dubai to raise cash to support its new term requirements”.

Copyright The Financial Times Limited 2009. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.

http://business.timesonline.co.uk/tol/business/markets/article6941717.ece (original source)

Dragon Oil eased 5½p to 398p after Emirates National Oil Company (Enoc), which is controlled by Dubai, said it would continue to go ahead with its £2.36 billion acquisition of Dragon despite the emirate’s debt problems. There had been speculation that Dubai’s woes could scupper the deal or even force Enoc to sell part of its 52 per cent stake in the group. The proposed deal has angered a number of investors, including Baillie Gifford, which argues that the 455p offer undervalues the group. Angry smaller shareholders have set up www.savedragon.com, a campaign site.

http://www.sbpost.ie/themarket/comment-greencore-wont-give-up-on-property-45941.html (original source)

Institutional shareholders in Dragon Oil have been rallying against majority shareholder Enoc’s (Emirates National Oil Co) offer of 455p a share, claiming that this undervalues the company.

Now proxy shareholder agency Manifest has rowed in on the issue, raising concerns about the independence of the ‘independent committee’ which recommended the deal.

It’s a small world in the oil business, and Enoc is owned by the Dubai government.

Essentially, Manifest feels that there are too many links between the independent committee and the Dubai government. Manifest said that a non-executive director, a Mr al-Muhairbi, has been involved with Margham Dubai Establishment, a wholly Dubai governmentowned company.

Another non-executive director, a Mr al-Mazrooei, is deputy vice-president of Operations at Dolphin Energy, which has signed a memorandum of understanding with the Dubai Supply Authority to provide gas from its fields in Qatar.

Meanwhile, committee member Nigel McCue stands to gain stg£1.1 million from the exercise of options in the company and subsequent sale of the shares at the bid price.

Ballie Gifford, the largest minority shareholder, Master Capital and Carmignac Gestion have all rejected the current offer, but Dragon Oil has said it won’t increase the price.

The buyout is to be conducted through a scheme of arrangement, and Enoc has stated that it will not vote at the meeting to approve the scheme.

If 12.125 per cent of the remaining shareholders vote against this, the bid will fail an outcome which looks increasingly likely.

Ed emailed me this article.. it’s not really that current anymore, but he makes some good points. -Rob

13-Nov-09
20:17

Dragon Oil and ENOC committed to scheme of arrangement, proxy solicitation firm hired as vote could be close

Story

* Sources play down potential switch to offer
* Proxy solicitation firm hired to chase up every shareholder and encourage vote
* ENOC thought unlikely to buy in market as it could strengthen position of any minorities against deal

Sources and people close to ENOC and its target Dragon Oil remain committed to effecting the deal via a scheme despite the rejection of the offer by the largest minority shareholder. A source close to the dual-listed, Turkmenistan-based oil and gas company, said other significant minorities had made reassuring noises regarding their intended vote but conceded that the outcome could be close.

The same source said that Georgeson, the proxy solicitation firm, had been hired to chase up every shareholder and encourage them to vote on ENOC’s 455p per share cash offer. You would not generally incur this cost if the scheme is thought to be a foregone conclusion, said the source.

Under the scheme structure, the deal could be blocked if one or two more significant minority shareholders decided along with 4.2% shareholder Baillie Gifford to reject the deal at the court meeting planned for next month. The minorities weighting will be magnified at the meeting as ENOC cannot vote its own shares.

This source and a second deal source downplayed reports suggesting ENOC could decide to switch to a public offer with a 75% acceptance level to increase the likelihood the deal has a successful outcome. “Unless we think the scheme will be defeated we are not going down that line,” said the first source close to Dragon when asked about the possibility of a switch. The second source who is close to ENOC said it had only reserved the right to switch to a public offer as it was “standard practice”.

The same two deal sources refused to comment on whether or not ENOC’s debt funding was conditional on it gaining 100% control of Dragon via a scheme or public offer with 90% acceptance condition. A source at Standard Chartered, which is providing the funding with the National Bank of Dubai, also refused to comment but said that the debt financing arrangements were being handled by the bank’s Dubai-based team. A spokesperson for ENOC declined to comment on the terms of the debt financing.

A merger arbitrage analyst said a public offer with a 75% acceptance condition would enable ENOC to buy in the market and could subsequently encourage hedge funds to buy and tender into the offer. With another 23.5% of Dragon, ENOC could then de-list the company. However, a second source familiar with Dragon said earlier this month that the 455p per share offer utilised “the last few shillings” ENOC could muster and that at one point during negotiations its offer had been below 390p per share. A sector source said this strengthened suspicion that the Dubai-state owned group had limited cash resources which, if true, would restrict its appetite to buy shares in the market.

The same sector source said that while ENOC is permitted under a scheme of arrangement transaction to buy shares below 455p in the market it is unlikely to do so. This would reduce its chances at the court meeting as ENOC would be taking shares off entities that would clearly vote in favour of the deal and be giving strength to the parties rejecting the offer.

Under scheme of arrangement rules the GBP 1.150bn buy-out of the remaining stock would fail if more than a quarter of the 48.5% of shares held by the minority shareholders rejected the offer at a court meeting at which ENOC cannot vote. However, this threshold could be substantially lower depending on the number of votes cast at the meeting which remains on track to be held before Christmas.

The results of Dragon’s 2009 AGM in May reveal that only around one third of the shares held by the minority shareholders were voted. And according to Manifest, the proxy governance and electronic voting service, the average percentage of eligible shares voted at court meetings in the UK and Ireland over the past five years is 53.7%.

Even if two-thirds of the shares held by Dragon’s minority shareholders were voted the deal would be blocked if another 4% of the company’s total shares joined Baillie Gifford and rejected the deal. Around six long only funds each own 1% or more of Dragon, according to regulatory filings and the first source close to Dragon.

A source at quant fund Axa Rosenberg Investment management, which filings show owns around 2.21% of Dragon, declined to reveal its voting intentions but said it made investment decisions using “valuations based on company and economic fundamentals”. However, the source added that the fund could “override these metrics” depending on the specific situation. A source at DWS, which doubled its stake to 1.16% in July, claimed to have since fully exited its position although this is not highlighted by rule 8 announcements.

The sector source believed that ENOC could still succeed with a scheme deal and referred to Songbird’s successful acquisition of Canary Wharf in 2004 despite the presence of a big minority shareholder who had tried to block the deal.

Earlier this week Baillie Gifford said it would reject ENOC’s recommended cash offer announced on 2 November on the basis that it materially understated the fundamental and strategic value of Dragon. Richard Sneller, head of emerging markets equities at Baillie Gifford, told this news service the fund typically invested for three to five years and that it had been invested in Dragon for at least 24 months. He declined to say whether the fund was seeking a bump to ENOC’s offer but added that the company had carefully worded its rejection statement and had deliberately not stated any specific share price it thought Dragon could reach.

The first source close to Dragon said Baillie Gifford’s rejection announcement was designed to stress its pride at being a long term equity investor and not a rallying call to other shareholders. If other shareholders hold out in the belief Baillie is seeking a bump it would likely be a mistake, said the source.

The two sources familiar with Dragon said that a pre-Christmas court meeting could encourage shareholders to approve the deal in order to book profits this year. It is understood the Irish Takeover Panel is expected to approve the shareholder documents by the beginning of next week after which Dragon will submit its application to the High Court, which could take two days. The documents will be posted by the start of the week beginning 23 November meaning a court date, likely to be in London, could be booked during the week beginning 14 December.

Should the deal break, analysts and two hedge funds involved in the deal expected Dragon’s share price to fall temporarily to somewhere between 350p and 380p. Dragons’ long term share price would largely depend on the future oil price as the two have historically been closely correlated, said one analyst. Most analysts’ target prices for Dragon range from 455p up to 550p.

Shares in Dragon closed up 0.7% at 432p valuing the company at around GBP 2.26bn.

by Ed Vinales

Readers furious about ENOC’s Dragon Oil plans (original source)

It seems that our recent reports regarding ENOC’s potential takeover of Dragon Oil have got a lot of our readers a little bit hot under the collar.

In fact we don’t think that such a fuss has been made over a dragon since St George strapped on his armour back in the olden days.

One reader has even started a website I’ve setup a website aimed at bringing together Dragon Oil’s many private investors.

The large hedge funds such as Noster in the UK, have even chipped in stating that their large shareholding will not be sold off cheaply.

So, to spare you trawling through the archives to read them for yourselves we thought that we’d publish the best of them on the blog.

Oh and if you’re an employee of ENOC, best to look away now.

(Some comments have been edited for size, but not for content)

Dragon should have dismissed the approach with a “modest premium” immediately as being derisory. They should have then got on with running the business instead of putting everything on hold. This whole sorry affair has brought Enoc (Dubai) and all of the participants into disrepute. By the way I will be voting a BIG NO !!!
Outraged, Fareham, UK

I agree totally with my fellow shareholders who have posted here. ENOC is acting as if this is a done deal, which it is not. I will NOT vote in favour of this acquisition and I rejoice in the news that Baillie Gifford agrees with me.
Johnsevtwo, Leicester, UK

Just what is the point of doing the research and taking a long term view of investing in Dragon Oil just to see it being taking over for less than 50% of it’s true worth? I would be very interested to see what price Enoc would accept for selling their share of Dragon. Rest assured, minority shareholders will vote against this proposed takeover.
Mr Sensible, London, UK

So now we have Noster along with Baillie Gifford showing that at least two Fund/Capital management firms are not looking for a quick buck, but rather long term returns. Just like most of the small private investors in Dragon we see massive long term potential in this high growth, strategically placed company. The PIs salute them both for having vision.
Noel Brett, Galway, Ireland

We cant really blame ENOC for trying it on at a silly price – Nothing wrong with a bit of bartering. I’m sure they’ll come up with a better price. But what really smells is the apparent complicity of the so called ‘independent panel’ and its advisors, who unbelievably recommended this offer at a level way below truly independent third party estimates of net asset value, let alone the much higher going concern value.
Martin Delaney, Port Glasgow, UK

I for one, as a small share holder am dead against this takeover, it feels like ENOC are tyring to get my Dragon Oil shares from me for an absolute pittance. There is no way Dragon Oil with all of its valuable assets and potential should be sold off for such a ridiculously small amount of money. I am so pleased to see that some of the larger (minority) shareholders have decided very sensibly to vote against this offer. There is no way this takeover bid should be allowed to go through.
Robert McKay, Canada

Dubai’s ENOC gets clubbed loan for £1.2bn Dragon buy

Issue: 1129 – 6 November 2009
Dubai’s Emirates National Oil Company (ENOC) is using a loan from National Bank of Dubai and Standard Chartered to back a £1.15bn cash takeover of Dragon Oil, announced on Monday morning. But in a sign lenders are still wary of underwriting deals for the emirate’s borrowers, the facility was clubbed and will not be syndicated.

ENOC, a subsidiary of state-owned Investment Corporation of Dubai, already owns 51.5% of the UK’s Dragon, which is valued at £2.36bn. It will fund its bid for the rest using its cash reserves as well as the loan, the size of which has not been disclosed.

Bankers close to the borrower said the two lenders decided against an underwrite a few months ago, shortly after ENOC announced its bid in June.

The takeover emerged less than a week after the Government of Dubai issued a heavily oversubscribed $2bn sukuk, which bankers said would set a benchmark and make it easier for Dubai borrowers wanting to tap the bank market.

ENOC has not issued a syndicated loan before, although ENOC Processing Co, a subsidiary, signed a Dh771m ($210m) project financing facility last year.

Standard Chartered advised ENOC on the takeover, while Davy Corporate Finance and HSBC advised Dragon.

Dragon, which operates oil fields in Turkmenistan, made an operating profit of $122m in the first half of 2009, a 39% year-on-year decrease. ENOC’s offer of £4.55 a share was a 35% premium to Dragon’s closing price on June 3, the day before the bid was made.

A&O, Arthur Cox and Mason Hayes act on sale of £1.2bn stake in Dragon Oil (original source)

Allen & Overy (A&O) has taken a lead role for Emirates National Oil Company (ENOC) on its £1.2bn acquisition of the outstanding 48.5% stake in Dragon Oil.

The magic circle law firm was instructed by the UAE company on its purchase of Dragon’s remaining shares. ENOC already owned the other 51.5% of London and Ireland-listed Dragon.

London corporate partner Dominic Morris led a City-based team for the firm, with finance partner Philip Bowden, tax partner Patrick Mears and environment partner Matthew Townsend also involved.

The acquisition is expected to be agreed under Irish law, with Ireland’s Arthur Cox instructed to advise on local law. Dublin corporate partner Maura McLaughlin is leading for the firm.

Dragon Oil turned to Dublin-based Mason Hayes & Curran for advice, with corporate chairman Paul Egan and fellow partner Justin McKenna advising.

Morris commented: “This acquisition marks an important step in ENOC’s strategy of building a vertically integrated oil and gas group with a strong upstream position.”

The deal comes after a raft of recent consolidation in the oil sector, with a trio of large firms winning roles on Gazprom’s £1bn purchase of a 51% stake in Italy’s SeverEnergia from Enel and Eni.

London investment firm says ENOC offer inadequate (original source)

London-based hedge fund manager Noster Capital has joined the growing list of larger shareholders in Dragon Oil (DGO) who are actively and vociferously against the terms of the proposed takeover of the company by the Emirates National Oil Company (ENOC). Noster’s managing partner, Pedro de Noronha, stated that the proposed offer of 455p per share materially undervalues the assets of Dragon Oil, which he believes is on a very profitable growth curve into the future. For this reason Noster Capital, on behalf of its investors, will reject ENOC’s proposed offer for Dragon Oil.

“ENOC’s offer for the minority interest it doesn’t already own in DGO is opportunistic and inadequate. It significantly undervalues its oil reserves and values their gas reserves at zero. Not to mention the strategic geopolitical location of its assets, well positioned for an energy starved China, which has proven in the recent past to be a willing minority partner in promising oil and gas projects. Furthermore, we believe the independent committee did not act in the best interest of shareholders by not putting the minority stake up for sale via a public auction that would stimulate fair value and where ENOC would be invited to submit a bid. We have proposed this motion to the independent committee back in June by letter to its advisors and have yet to hear back from them”.

Noster Capital LLP is the investment manager for Noster Capital Master Fund which invests for the medium to long term in public equities of companies who are selling at deep discounts to their intrinsic value. Noster Capital initiated its investment in Dragon Oil in March 2009, when the shares were trading at 145p.

Takeover doubts hit Dragon Oil (original source)

Shares in Dragon Oil were under pressure yesterday amid fears that its proposed £2.36 billion takeover by its largest shareholder would not go ahead.

Emirates National Oil Company (Enoc), which is owned by the sovereign wealth fund of Dubai, said this month that it would pay £1.15 billion for the 48 per cent of the shares in the Turkmenistan-focused oil explorer that it does not own, although the deal has upset several minority shareholders.

Baillie Gifford, Dragon’s second-largest shareholder with a 4.2 per cent stake, said that the deal understated the fundamental and strategic value of the company and that it would vote against the takeover.

Noster Capital, a hedge fund that holds a 0.12 per cent stake, spoke out against the proposed 455p offer, calling Enoc’s move opportunistic and inadequate. The fund also accused the company’s independent committee, which continues to recommend the deal, of not acting in the best interest of all shareholders.
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JPMorgan, another big shareholder, is believed to be selling out of Dragon, indicating it is sceptical that a deal will be done and other large investors are believed to be unhappy and intending to vote against the deal. Shareholders representing 75 per cent of Dragon’s shares not owned by Enoc must vote in favour of the takeover for it to go ahead. The shares fell 8p to 439p.

African Diamonds gained 4½p to 51p after De Beers agreed to sell its entire stake in the AK6 Botswana project, in which African has a 29 per cent stake, to Lucara Diamonds.

Treveria fell 0.09p to 0.1125p after the property investor warned that it faced a potential tax liability that could hit its cash resources, forcing it to scrap plans to return cash to investors.