Bloomberg News

DNO Rises to Highest Since July on Shareholder, RAK Deal

October 31, 2011

(Updates with shareholder comment in third paragraph.)

Oct. 31 (Bloomberg) -- DNO International ASA rose to a more than three-month high in Oslo trading after a group of minority shareholders reversed opposition to a planned merger with units of RAK Petroleum PCL in exchange for meeting certain demands.

DNO climbed as much as 9.3 percent to 6.995 kroner, the highest since July 5. The DNO Initiative, representing about 600 shareholders with 5 percent of voting rights, backed the deal in exchange for RAK’s agreement to cut its stake to 30 percent by the end of 2012, Torstein Oeygarden, a spokesman for the group, and RAK Chief Executive Officer Bijan Mossavar-Rahmani, said in Oslo today. RAK would get 40 percent control through the deal.

“Mossavar-Rahmani is definitely the right man to lead DNO going forward,” Oeygarden said. “Eighty percent of our members voted in favour of the agreement.”

DNO rose 4.7 percent to 6.7 kroner by 4:24 p.m. in the city. The stock is down 24 percent this year, valuing the Oslo- based oil producer at 6.4 billion kroner ($1.2 billion).

The company agreed in September to merge with the petroleum units of its largest shareholder, valuing DNO at $1.64 billion, or 9.50 kroner a share, and RAK’s operating subsidiaries at $250 million, the companies said at the time. Shareholders, including the DNO Initiative and former DNO Chairman Berge Gerdt Larsen had said they would oppose the merger at a meeting due tomorrow.

Board Candidate

The agreement with the shareholders’ group also states that an independent committee including smaller owners will be set up to propose a member for the board. RAK would support such a candidate, Mossavar-Rahmani said. RAK also agreed to accept as many as 80 million treasury shares as partial settlement of the 153.4 million consideration shares it will receive, to reduce dilution of shareholders’ ownership as a result of the merger.

RAK gave its proxy vote on giving DNO’s board the right to issue 100 million new shares before a planned secondary listing in London to Oeygarden. The DNO Initiative will vote against.

“The sentiment has turned in favor of the merger,” said Mossavar-Rahmani, DNO’s current chairman. “We have the confidence of the largest organized shareholder group. I expect the shareholders at the EGM will vote in favor of the merger.”

While Petrolia ASA, owned by Gerdt Larsen, hasn’t decided if it will vote in favor of the merger, the deal is likely to go through with the accord approved by DNO Initiative shareholders, spokesman Geir Bjoerlo said today by phone before Oeygarden and Mossavar-Rahmani briefed reporters.

Petrolia holds about 5.3 million DNO shares, while Larsen Oil & Gas owns about 5.5 million shares. A third Gerdt Larsen company, Increased Oil Recovery AS, holds 25 million DNO shares, or 2.7 percent, according to data compiled by Bloomberg.

Good Elements

“There were three very good elements in the agreement,” said Bjoerlo. “Most important is the guarantee that RAK will reduce its stake to 30 percent. That was our main argument.”

DNO said in September that merging with RAK would add 7,500 barrels of oil equivalent a day to its average working interest output of 45,000 barrels. RAK’s contribution would rise to about 15,000 barrels a day within a year after redevelopment of Saleh field off Ras Al Khaimah, the companies said. The merged company would operated in five Middle Eastern and North African nations.

DNO today reported third-quarter working interest of 36,773 barrels of oil equivalent a day, up from 24,956 barrels a year before, mainly from fields in Iraq’s northern Kurdish region.

Mossavar-Rahmani said he was committed to accelerating the process for a DNO listing in London, tentatively planned for next year, should the market conditions allow.

--Editors: Tony Barrett, John Viljoen

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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