Bloomberg News

DNO Shareholders Approve Merger With RAK’s Middle East Oil Units

November 02, 2011

Nov. 1 (Bloomberg) -- DNO International ASA’s shareholders approved a proposal to merge the company with RAK Petroleum PCL’s oil and gas units in the Middle East and North Africa after two months of wrangling over the issue.

Seventy-seven percent of shareholders voted in favor of DNO merging with majority shareholder RAK in exchange for DNO shares at an extraordinary general meeting in Oslo today.

The transaction values DNO at $1.64 billion, corresponding to 9.50 kroner per share, and RAK’s operating subsidiaries at $250 million. Criticism of the move prompted RAK to enter an agreement with a group of minority shareholders yesterday. The deal will create a company with operations in northern Iraq, Yemen, the United Arab Emirates, Tunisia and Oman.

“DNO’s ambition is to become a significant exploration and production company in the Middle East and North Africa region,” Chief Executive Officer Helge Eide said at the EGM today. “This merger creates a stronger platform for further growth. Growth will be done through transactions and acquisitions.”

Berge Gerdt Larsen, the former chairman of DNO who was voted off the board in June, worked to prevent the merger, saying the deal undervalued DNO and blocked a possible higher bid from other interested parties.

DNO rose 2.1 percent to 6.705 kroner at the close in Oslo. The stock is down 26 percent this year, valuing the Oslo-based oil producer at 6.4 billion kroner ($1.1 billion).

RAK, which will get about 43 percent control of DNO through the deal, yesterday committed to reducing its stake to 30 percent by the end of 2012.

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, DNO Chairman Bijan Mossavar-Rahmani said. RAK 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 the dilution of shareholders’ ownership as a result of the merger.

DNO today said it had completed its open market partial tender offer for as many as 54.5 million common shares, which resulted in the company buying back 42.6 million shares at 7.50 kroner each. The company’s stock of treasury shares after the transaction is 68 million shares.

The board’s request for authorization to increase DNO’s share capital by as many as 100 million shares was not approved at today’s EGM. RAK as part of the deal with minority shareholder group the DNO Initiative agreed to postpone the capital increase until the details for a secondary listing in London in 2012 had been established. The listing process would be accelerated, Mossavar-Rahmani said yesterday.

Kurdish Region

DNO, the first foreign company to begin pumping oil in Iraq since the 1970s, is awaiting outstanding payments for its exports from the Kurdish region after receiving two payments earlier in the year. Iraq’s central government agreed in February to resume exports from the semi-autonomous region and pay foreigners while it sought to resolve a dispute over oil contracts with the regional government. The Kurdish region accounted for 88 percent of DNO’s output last quarter.

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 the redevelopment of Saleh field off the U.A.E sheikhdom Ras Al Khaimah, the companies said. The company’s reserves would rise 15 percent to 406.6 million barrels, according to DNO.

--Editors: Alex Devine, Amanda Jordan

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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