Genel Energy PLC (LON: GENL) shares surged 23% to 61.48p after the Kurdistan-focused oil producer rejected a £202 million takeover approach from Norwegian rival DNO.
DNO has now taken its proposal public after Genel’s board rejected the approach on 4 August, increasing pressure on the company to engage in takeover discussions.
The Norwegian oil producer has offered 69p in cash for each Genel share, representing a 38% premium to Genel’s closing share price on 6 August and around a 30% premium to its three-month average.
DNO has also proposed a cash-and-shares alternative of equivalent value. The share component could be issued using existing authorities, meaning DNO would not need to seek approval from its own shareholders.
DNO argues that combining the two businesses would create a significantly larger operator in the Kurdistan Region of Iraq, where the companies already have substantial interests and where production has previously reached as much as 285,000 barrels of oil per day.
The approach comes as Genel pursues its own proposed acquisition of Capricorn Energy, launched in early July as part of a strategy to diversify the business.
DNO said its offer provides Genel shareholders with a substantial premium and certainty of value regardless of the outcome of the Capricorn transaction. It noted that several other parties have also indicated potential interest in Capricorn.
Should Genel fail to secure Capricorn, DNO argued that the company would remain without the planned diversification while carrying corporate overheads that could be disproportionate to the size of the business.
DNO also highlighted the liquidity offered by an all-cash transaction, given relatively thin trading in Genel shares, as well as the potential benefits of greater operational scale in Kurdistan amid continuing security and commercial risks.
Any formal takeover offer would be governed by the UK Takeover Code, with DNO leaving open the possibility of making a further approach.
Genel’s sharp share-price reaction nevertheless leaves the stock trading below DNO’s proposed 69p-per-share cash offer.
Comment: Shares of GELN have been as flat as a pancake for the best part of two years now, something which belies the hot space the company is in, a point underlined by today’s news. Indeed, the £40m market cap seems to be out of kilter with the big counterparty / international nature of the business.
