Hope of higher offer for Dragon Oil

Investors in Dublin-listed exploration firm Dragon Oil are being urged to hold out for an anticipated higher value takeover offer from the company’s majority shareholder, the Emirates National Oil Company (ENOC), than the €5.03bn currently being proposed.

An improved proposal is expected over the course of the next month or so.

Dubai-based firm Dragon grew out of Irish company Oliver Prospecting & Mining in the 1970s and has its shares partially listed on the Iseq.

It announced late on Thursday that it had received a takeover proposal from ENOC, which currently owns 54% of the business.

While not a firm bid, the possible cash offer to Dragon’s minority shareholders is set at £7.35 per share, or £3.6bn (€5.03bn).

ENOC is proposing a 44% premium to Dragon’s closing price at the time of ENOC’s last approach and a 14% premium to Thursday’s London closing price of £6.45.

Darren McKinley of Merrion Stockbrokers suggests Dragon should be holding out for a higher offer.

“This is the second time that ENOC has made an approach; the first time back in 2009 when they proposed a 35% premium. Dragon Oil has grown significantly since 2009. ENOC will not want this Dragon to get away. The share price reaction [on Thursday, when Dragon’s shares jumped by 5.4%] would suggest current shareholders would not accept £7.35 and we would hold out for a higher formal offer,” he said, noting that an offer of £8.05 per share/£3.95bn (€5.56bn) would be more appropriate.

Mr McKinley views ENOC’s move as “opportunistic”, noting that Dragon is undervalued compared to its peers, has substantial assets and is set to grow production by 12% this year. He added that Merrion expects ENOC to return with an increased proposal in the next three to six weeks and that the £8.05 per share level should be a minimum improvement. He said the current offer seems to equate only to £2.4bn for Dragon’s current operating and exploration assets.

“The offer continues to undervalue Dragon,” Mr McKinley said.

In an earlier statement, ENOC said its ownership would benefit Dragon, given the uncertainty in the oil and gas sector at present.

It added that it has been a long-term and supportive shareholder, but thinks Dragon has done as much as possible in its existing upstream strategy.


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