Bottom Line: Enterprise asks to be taken on trust

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The Independent Online
ENTERPRISE OIL must either be supremely confident or keeping its powder dry. There was certainly nothing in yesterday's offer document for Lasmo to convince the doubters of the merits of its pounds 1.45bn bid.

The document largely rehearses the arguments advanced when the bid was launched last week, but shows no greater inclination to go into details. The group remains vague about where the advantages of greater size will appear.

It is unlikely to be in cost savings - apart from a small reduction in head office, much of Lasmo's exploration and development costs are fixed.

Shareholders have to take on trust the claim that they will come from increased access to exploration opportunities - Enterprise refuses to identify a single one. By trumpeting its record in the 10 years since it came to the stock market, it merely highlights how much easier it is for a small company to grow than a larger one.

Enterprise is trying to focus the argument on management. By offering Lasmo shareholders exactly the same dividend income as they would receive from an independent Lasmo until 1997, they are asking shareholders to judge which management will have produced the best returns by then.

Enterprise claims its record makes it the clear winner. But its dividend cover is now so low that it would find it difficult, if not impossible, to offer conventional shares without cutting the payout to existing shareholders. And, if it has to put up more than a third of the consideration in cash, its gearing would come under pressure.

Lasmo has had the best of the argument so far, but a week's success has to be set against years of dismal performance and management mistakes. Joe Darby, the new chief executive, may be making many of the right moves in cutting costs and selling assets, but he still has to prove that he can complete the transformation.

Those with long memories may find the bid reminiscent of Lasmo's for Ultramar. As that was the cause of much of Lasmo's current difficulties, that portent is not encouraging.

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