LONDON - Another shareholder in explorer Dragon Oil said it would reject a takeover bid from controlling shareholder Emirates National Oil Company, that values Dragon at $3.9 billion.
Paris-based Carmignac Gestion said the bid undervalued Dragon's assets and prospects for growth, boosting the chances that ENOC will not succeed with its bid and may be forced to offer more cash.
"It will be tight," one source close to the process said.
Portfolio Manager Xavier Hovasse said in an email that funds under his firm's management owned 4.3 million shares, or 0.83 percent of Dragon's issued shares.
Dragon shares traded down 0.6 percent at 429 pence at 1512 GMT, lagging a 1.9 percent gain in the DJ Stoxx European oil and gas sector index
Dubai state-controlled ENOC said its bid was conditional on acceptance from 75 percent of the minority shareholders, which means investors representing around 12 percent of the total share capital could block the deal.
After Dragon's largest minority investor Baillie Gifford & Co, whose funds own 4.2 percent of Dragon, said last week it would reject the bid, Keith Morris at Evolution Securities said there was a real and growing risk the bid would fail.
Peter Hutton, oil analyst at NCB, said in a research note last week that ENOC has allowed itself the option to increase its original bid of 455 pence/share but added it may be unable to borrow enough money to do so.
ENOC plans to finance the $1.9 billion acquisition with debt from Standard Chartered and Dubai-state controlled bank Emriates NBD.
However, as soon as it consolidates Dragon Oil, it would be able to use the $900 million on Dragon's balance sheet to repay a chunk of the debt.
Soon after, it could borrow against Dragon's fields to repay much or all of the remaining debt, market sources said, with the result that ENOC has to contribute little or no cash from its own balance sheet.
One hedge fund manager, who owns Dragon stock, said ENOC could afford to pay up to 6 pounds/share without having to contribute any cash to the deal, although he doubted it would be prepared to pay this much.
ENOC declined to comment while a Dragon spokesman said the committee of independent directors still recommended the bid, which they thought was fair.
ENOC could, possibly, gain outright control without upping its offer if it amended the offer to a form whereby it proceeds with the takeover if it receives 75 percent of Dragon's total issued share capital.
It could then delist the company, which would force some institutional investors, which are only allowed to own listed shares, to sell out, thus allowing ENOC to reach the threshold at which it could squeeze out minority shareholders.
ENOC already owns 52 percent of Dragon.
Hutton sees such a move as legally possible but unlikely.
"It would be damaging to Dubai's reputation at a time when the Emirate is trying to establish itself as an international financial centre, and when Dubai is seeking international funding. We would not expect the advisers of either ENOC or Dragon to support such a tactic" he said