ENOC owns nearly 54% of Dubai-based Dragon and last week proposed a possible cash offer of £7.35 per share for the entirety of the firm.
Merrion Stockbrokers suggested the £3.6bn (just over €5bn) proposal was opportunistic and undervalued Dragon. It said it expects a higher offer of at least £8.05 per share/£3.95bn to materialise over the next six weeks.
However, UK analysts have suggested the proposed price is fair, but the chance of a deal is only around 50% at present.
“We regard 735p per share as fair. As regards our note of March 19, we regard an offer in the range of 700p-750p as fully reflective of the economic benefits of outright ownership of Dragon Oil,” said the exploration research team at Stifel Equity Research in London.
Stifel said recent share price movement suggests a 50% chance of a deal being reached.
In the research note, Stifel said: “Yesterday’s [Thursday being the day of the proposal] closing price represents 49.5% of the difference between the level of the proposal and the prior 30 days’ closing price of 626p.
“Simplistically this suggests the market remains split on the likelihood of a transaction proceeding.
“If, instead, one takes the undisturbed price as 509.5p — that at March 13, the business day immediately before the date of the first approach by ENOC — the implied chance of a deal is 75.6%, although it should be noted that the price of Brent was some $12 lower at that time.”
Citi also sees the 735p price as representative of “an attractive exit opportunity” for Dragon’s minority shareholders, but added there’s only a one-in-three chance of the deal being made.
“If a firm offer is made, we think there is no certainty it will be accepted, and a possible offer sweetener may be required to garner shareholder acceptance. We assume there is a one-third chance the offer will be made and accepted, sweetened, and accepted, and rejected,” Citi said.
Stifel said a deal could be negative for potential acquisition targets — falling oil prices led to Dragon abandoning its approach for Dublin-based Petroceltic last year — but said ENOC could use Dragon’s cash for similar purposes.