Dragon Oil accepts better bid

After squeezing more money out of Emirates National Oil Company Limited (ENOC), Dragon Oil negotiators are telling shareholders to accept a sweetened offer for the Dubai-based oil company.

Talks have rumbled on for three months, with the starting price set by ENOC at 650p. Last month the firm, which already owns 54% of Dragon, said it would pay 735p a share for the rest. Now, three weeks later, both parties have agreed an offer worth 750p in cash, valuing the business at £3.7 billion and the other 47% at about £1.7 billion.

ENOC chief Saif Al Falasi admitted that the improved bid was a "direct result" of discussions with key shareholders following the 21 May indicative offer.

Most of the minority shareholders will have to say "yes" for the deal to go through - that's about 23% of the shares in issue. The additional 15p a share will mean an extra £5.3 million for 7.2% shareholder Baillie Gifford. Franklin Resources and Setanta Asset Management are quids in, too.

Advice from Thor Haugnaess, chairman of Dragon's Independent Committee set up to work on the deal, is unequivocal.

"The Independent Committee believes that ENOC's cash offer, which is the result of extensive negotiations between the Independent Committee and ENOC, reflects the achievements and future prospects of the Dragon Oil Group and offers Dragon Oil minority shareholders an opportunity to exit at an attractive price," he said Monday.

It certainly does. Dragon shares traded as low as 450p six months ago as the oil price plunged below $60 a barrel. The offer is two-thirds higher than that, and 47% better than the 509p at which Dragon languished the day before ENOC's first approach.

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Remember, too, that ENOC has tried to buy Dragon before. It offered 455p a share five years ago, but was beaten off. And that was with the oil price at around $80 a barrel.

ENOC now argues that Dragon has achieved as much as is possible through its existing upstream strategy. Production is close to plateau at its sole producing asset - the Cheleken contract area in the Caspian Sea, offshore Turkmenistan - and oil markets are "uncertain".

With the share price up 9% Monday at 731p, investors are clearly more willing to price in success at the new level - the discount to offer price has narrowed from 9% at 735p to less than 3% this time.

"It looks like we are witnessing the denouement of the Dragon Oil story," says oil industry expert Malcolm Graham-Wood. "Although there might be some curmudgeonly shareholders who consider the price to still be parsimonious if I were them I would take the money and run. The time for being a braveheart is now over and the time for counting the cash has begun."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.