LONDON - The largest minority shareholder in Dublin-listed Dragon Oil PLC has rejected a takeover offer from Dubai-based Emirates National Oil Company, saying it materially undervalues the Turkmenistan oil producer, according to a statement published on its Web site Tuesday.
"Over the past decade, the company has delivered very strong oil production growth which we believe should be sustained for a number of years to come," said the statement from investment management firm Baillie Gifford. "We would encourage management to continue its successful growth strategy and progress its proposed restructuring and application for primary listing on the London Stock Exchange."
A second shareholder, the hedge fund Noster Capital with a 0.12% stake in Dragon, Wednesday also rejected ENOC's offer saying it, "significantly undervalues [Dragon's] oil reserves and values their gas reserves at zero."
Dragon Oil's board has recommended the offer. "The committee remains happy with the valuation put forward," by ENOC's offer, said a Dragon Oil spokesman.
ENOC declined to comment.
ENOC already owns 51.5% of Dragon Oil and is offering 455 pence a share in cash for the remaining shares. The offer represents a 35% premium to the share price the day before the bid and values the whole company at $2.357 billion.
NCB Stockbrokers analyst Peter Hutton said Baillie Gifford's rejection is significant because three-quarters of the minority of shareholders must approve ENOC's offer.
"Baillie Gifford hold 4.2% of Dragon - one third of the votes necessary to block the approval," he said. "[This] will provide a significant catalyst around which other holders may choose to group. I have not yet spoken to any holder who has indicated that they are minded to accept the 455p," he added.
"It's touch and go as to whether [ENOC's offer] will go through with such a large shareholder rejecting it," said Evolution Securities analyst David Farrell. "We could now see the offer quickly rebuffed," by other shareholders, which would result in a significant fall in Dragon's share price, he said.
If ENOC's offer is rejected, it may struggle to come up with a much higher price, said Hutton. "They've been dragged kicking and screaming to 455p and financing is an issue," following this year's $10 billion bailout of indebted Dubai by its fellow emirate Abu Dhabi, he said.
Dragon Oil's principal asset is the Cheleken contract area, in Turkmenistan's Caspian Sea section. The contract area, operated and 100% owned by the company, contained proven and probable reserves of 645 million barrels of oil and contingent gas resources of 3.2 trillion cubic feet, as of June 2008.