KNOC in $2.6 bln hostile bid for Dana Petroleum

By Miyoung Kim and Matt Scuffham

SEOUL/LONDON (BestGrowthStock) – State-run Korea National Oil Corp made a hostile 1.67 billion pounds ($2.6 billion) bid for British group Dana Petroleum (DNX.L: ), highlighting South Korea’s stronger resolve to secure energy assets overseas.

Korea gave KNOC a $6.5 billion warchest this year to compete with energy-hungry Asian state firms looking to secure supplies for their growing economies.

Chinese and other firms have so far outgunned KNOC, which explores and stores oil, in bigger M&A battles.

The biggest hostile bid by a South Korean firm came on Friday after management at Dana, a North Sea and Egypt-focused explorer, rejected KNOC’s 1,800 pence per share proposal earlier this month.

The Aberdeen-based explorer urged investors to take no action. Its shares closed up 6.1 percent at 1,798 pence.

Investors said that, with two months having passed since KNOC’s approach, Dana needed to quickly produce another bidder or other material reasons why the bid undervalued the company.

“They have got to pull a rabbit out of the hat,” one hedge fund manager said.

Investors did not expect another bidder emerging at this late point. “I’m not holding my breath,” a second hedge fund manager said.

KNOC said it had secured non-binding letters of intent from investors representing 48.6 percent of Dana’s shares.

The offer represented a 59 percent premium to Dana’s closing price on June 30, the day before news of KNOC’s approach.

“The offer implies an enterprise value per proven and possible reserves of circa $12.5/barrel of oil equivalent, which is a good price for the Dana assets, in our view,” Marc Kofler, an oil analyst at Citigroup, said in a research note.

Dana shares have lagged the offer price by around 100 pence since KNOC revealed it last month because of fears a deal would not materialize.

Some investors have said Dana’s reluctance to accept what many analysts see as a generous offer was 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.

KNOC will buy out Dana’s convertible bond holders to give a total deal value of $2.9 billion, meaning it would top KNOC’s purchase of Canadian group Harvest Energy last October for C$1.8 billion ($1.7 billion).

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For StarMine comparative data: http://r.reuters.com/gup26n

For graphic on key deal stats:

http://link.reuters.com/nar26n

For graphic on KNOC overseas oil and gas investments:

http://graphics.thomsonreuters.com/F/08/KR_OVRSSTS0810.gif

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POSITIVE BID

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 Dana wanted before opening its books.

Dana’s top institutional investors, including Schroders (SDR.L: ), BlackRock (BLK.N: ) and JPMorgan Asset Management, had urged Dana to engage in talks, according to reports.

TIMID BUYER?

Korea 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.

The company has lost a number of deals in recent years.

China’s largest oil refiner, Sinopec (600028.SS: ), outbid KNOC for London-listed Addax Petroleum in 2009. Italian group ENI (ENI.MI: ) trumped KNOC to snap up British-based Burren Energy in 2007.

KNOC chief executive Kang Young-won, who spent more than three decades with the 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 (047050.KS: ) win while serving as chief executive 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.

Analysts said a takeover of Dana could put Faroe Petroleum (FPM.L: ), in which Dana holds 27.5 percent, in play.

“The market could look at this being a potential springboard for a bid for the company, whether by KNOC itself or if it is sold on to another potential predator,” said Peter Hitchens, oil analyst at Panmure Gordon, Faroe’s joint house broker.

(Additional reporting by Tom Bergin in London and Cho Mee-young in Seoul; Editing by David Cowell)

($1 = 0.6431 pound = 1.040 Canadian dollars)

KNOC in $2.6 bln hostile bid for Dana Petroleum