Enterprise bids pounds 1.45bn for Lasmo: Battle is joined as smaller oil company rejects its rival's offer as being 'of no value to shareholders'

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The Independent Online
Shares in Enterprise Oil and Lasmo were in retreat yesterday after Enterprise launched a foreshadowed pounds 1.45bn hostile bid for its smaller oil exploration and production rival - which was immediately rejected. .

Graham Hearne, chairman and chief executive, explained that Enterprise was seeking to create a strong world-scale oil business that was well capitalised with strong cash flow, a rising production profile and significant growth prospects.

'This is a big boys' game and Lasmo will give us the next step change we need - 75 per cent more production, an 85 per cent increase in reserves and 70 per cent more exploration acreage, ' he said.

'The financial fit between the two companies is also very good. We have cash looking to choose between new investment opportunities. They have development projects and exploration prospects but no cash to fund them.'

The bid, the largest hostile offer in the UK since GEC and Siemens bid pounds 2bn for Plessey in 1989, is in the form of a package of special Enterprise 'A' shares and warrants, which Enterprise said was worth 150p for each Lasmo share.

But, after Enterprise shares fell by 21p to 424p, analysts calculated that the value of the bid was as little as 137p.

Lasmo shares, which have risen by 40 per cent in recent weeks, closed 5.5p down at 157p. The Stock Exchange is understood to be investigating the sharp movements in Lasmo's share price ahead of an announcement from Enterprise on Wednesday, made at the request of the Takeover Panel, that it was considering an offer

Lasmo said it strongly advised shareholders to reject the 'unsolicited' announcement by Enterprise, claiming that the offer failed to recognise the value of the company and was at a discount to the market price.

'Lasmo has the strength to exploit its own assets,' said Joe Darby, chief executive. 'It has no need of Enterprise, which by contrast is facing difficulties in finding areas of future growth.

'This contrived paper offer from Enterprise would dilute the significant growth potential for Lasmo shareholders. Enterprise's arguments for the bid are driven by size and bringing the two companies together adds no value for shareholders.'

Sentiment towards the two companies was affected by news that the US Standard & Poor's credit rating agency was likely to downgrade its debt rating of Enterprise Oil and to upgrade Lasmo in the wake of its current pounds 219m rights issue.

Analysts suggested that Enterprise's offer was only a sighting shot, although none would rule out a third-party bid, with Arco of the US tipped as favourite alongside the French Elf and Total and British Gas as an outside possibilty.

For every 80 Lasmo ordinary shares Enterprise is offering 27 Enterprise 'A' shares and 12 Enterprise warrants.

A dividend of 3p will be paid on the Enterprise 'A' shares for each of the next three years. This is equivalent to the 1p dividend which Lasmo has said would be the most it could pay until its finances improved.

The 'A' shares will convert automatically into ordinary Enterprise shares in 1997. Enterprise warrrants will carry the right to subscribe for new Enterprise ordinary shares at a price of 470p at any time between 1997 and 2001.

'I don't think the terms are particularly exciting for Lasmo shareholders,' said Steve Turner, of Nomura Research.

'Although they get the same income as now they get a lower yield than other Enterprise shareholders for three years and the warrants will dilute their 100 per cent current exposure to Lasmo's valuable Liverpool Bay field development.'

Some, like David Basham of Kleinwort Benson, did not think Enterprise should be making the bid at all.

He said that the company should avoid corporate acquisitions and concentrate on buying oilfield assets, of which there were plenty on the market.

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