Enterprise ready to launch 1.5bn pounds bid for Lasmo: Offer would be entirely unwelcome, says target

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The Independent Online
ENTERPRISE OIL is poised to make a hostile bid worth around pounds 1.5bn for Lasmo, the oil exploration and development group, after the Takeover Panel yesterday forced the company to admit that it was considering an offer.

Lasmo responded to Enterprise's announcement by declaring that it had not had talks with Enterprise and adding that an offer would be 'entirely unwelcome'.

The panel asked Enterprise to make a statement since it was concerned that speculation surrounding Lasmo, which has driven up its share price by 33 per cent in less than a month, was creating a false market in its shares.

Enterprise, Lasmo's larger British rival in oil exploration, had been widely tipped as a potential bidder along with a long list of other energy companies including the US Arco, British Gas and the French companies Total and Elf. But it was the only one to make an announcement yesterday.

In response to the panel's prompting, Enterprise said it was considering a bid for Lasmo among other options. But it added that any offer would be 'unlikely' to value Lasmo at a level above the previous night's closing price of 153p.

This initially caused Lasmo shares to drop back to 143p, but in heavy trading the shares rose to 165p before closing at 162.5p, up 9.5p. Analysts said that Enterprise, if it were to bid this morning, would probably make a low, sighting shot.

Enterprise shares reacted sharply at first, tumbling by more than 20p, but recovered later to end 6p lower at 445p.

Enterprise has been seen as a likely buyer as its strongly rising profile of oil production is expected to peak in three years. Since its exploration activity has fallen off because of lower oil prices and adverse tax changes, the market expected it to bolster its oil reserves through significant purchases.

Loss-making Lasmo is in the middle of a pounds 219m rights issue to repair its balance sheet and finance a series of exploration projects and develop fields in Liverpool Bay, the North Sea and Pakistan to return it to profitability.

Lasmo has struggled since the ill- fated acquisition of Ultramar, the oil and gas comapny, for pounds 1bn in early 1992. The purchase left Lasmo with an inflated cost base, extensive borrowings and heightened exposure to a falling oil price.

Despite a series of disposals the company, which was forced to pass its final dividend after a net loss of pounds 131m in 1993, still faced a debt mountain equivalent to 100 per cent of shareholders' funds. Analysts had been expecting a takeover bid to emerge since last week and argued that an approach was likely to come once Lasmo's rights issue was out of the way.

Any bid will provide an immediate challenge for Rudolph Agnew, former chairman of Consolidated Gold Fields, who agreed last month to take over as chairman of Lasmo from Lord Rees, who is soon to retire.

The appointment was seen as smoothing the way with institutional investors for Lasmo's rights issue and any possible predatory action.

'There are two likely outcomes if the bid goes ahead,' said Tony Alves, a Henderson Crosthwaite analyst. 'Either Enterprise is successful or a higher cash bid is flushed out, possibly from outside the sector.'

He said the logic of an Enterprise bid would be to gain access to Lasmo's assets, which range from shares in the North Sea Piper field and the rich Liverpool Bay oil and gas field to attractive interests in Indonesia, Algeria and the Far East.

'By making cost reductions in overheads and exploration expenses, the deal could make sense from an earnings per share and cashflow view. And Enterprise would particularly love to end up with Lasmo's (25 per cent) stake in Liverpool Bay,' he said.