Cool reaction to higher Lasmo bid: Still no cash element as Enterprise offer values target at pounds 1.56bn

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The Independent Online
ENTERPRISE OIL has increased its offer for Lasmo with the promise of more shares and an increased dividend - but no cash sweetener.

The City yesterday remained cool about the revised terms, which are worth 162p a share and value Lasmo at pounds 1.56bn on last night's closing prices.

One analyst said: 'Shares in both companies fell. You would expect Lasmo shares to rise if the market was enthusiastic for this offer.

'The implication is that the bid will not succeed, but it is too early and too close to call at this stage.'

Enterprise today embarks on a campaign to persuade institutional investors to back the new deal. The original offer, valuing Lasmo at pounds 1.3bn on Monday's closing price, was 27 new Enterprise 'A' shares and 12 warrants for every 80 Lasmo ordinary shares.

The new offer is 36 Enterprise 'A' shares and 13 warrants for every 88 Lasmo ordinary. The deal involves offering 395 million 'A' shares compared with 326 million originally. The 'A' shares would now represent 44.5 per cent of the enlarged equity.

Enterprise would also double the dividend on the 'A' shares. Under the old offer these carried a 3p dividend in 1994, 1995 and 1996, converting into Enterprise ordinary shares in 1997. Now they would convert a year earlier, in June 1996, after payment of the 6p dividend in 1994 and 1995.

The exercise price of the warrants is now 430p compared with 470p in the original offer. One small institutional investor was disappointed that the controversial offer of warrants had not been simplified, but believed the new terms would clinch the bid.

Many investors, especially the US shareholders who account for 20 per cent of Lasmo, hoped for a cash element in the new offer.

But Andrew Shilston, Enterprise's finance director, said the all-share offer was based on growth prospects and financial strength. 'Cash may have secured Lasmo but it would have damaged long- term interests and not have been in the interest of our shareholders,' he said.

Lasmo was losing money and would continue to absorb cash for up to three years. The revised warrants meant Lasmo shareholders were better positioned for any improvement in the oil price.

He believed the increased asset value quoted by Lasmo in its latest defence document had reinforced the Enterprise case. The rosy picture in the document and 25 per cent enhanced asset value were at odds with what Lasmo said at the time of its rescue rights issue. As there was no cash exit investors would have to decide whether to stay with a management that had a poor track record or join Enterprise, he said.

Rudolph Agnew, Lasmo's chairman, continued to maintain that there was no commercial logic behind a combined company.

'Enterprise's final offer remains inadequate,' he said. 'It contains no cash element and continues to comprise second-class paper and warrants, both of questionable value, rather than the ordinary shares which are being held by existing Enterprise shareholders.

'I believe Enterprise has been unable to offer ordinary shares because of the pressure it is under to sustain its share price through high dividends paid out of inflated profits. I see no reason why Lasmo shareholders should let Enterprise dilute their upside.'

John Toalster, analyst at Strauss Turnbull, said: 'Frankly it looks like a bid determined to get Lasmo at the expense of Enterprise shareholders. There will be substantial dilution, probably about 10 per cent, for Enterprise shareholders.

'The bid is about 22 per cent higher than the original offer, and that looked pretty fully priced.'

Enterprise shares fell 9p to 390p. Lasmo was down 4p at 143.5p. The offer closes on 1 July.