Lasmo rejects claims of weakness: City gives cool response to emphasis on strategy in oil group's first salvo against Enterprise takeover bid

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The Independent Online
LASMO yesterday dismissed claims that it did not have the financial muscle to secure its future, as it fired off its first official defence to the pounds 1.5bn takeover bid from Enterprise Oil.

The document sought to emphasise that Lasmo had a coherent strategy by concentrating on its investment plans and growth opportunities.

Rudolph Agnew, chairman, promised shareholders a 'second instalment' of the document in which Lasmo would focus on Enterprise - why the predator had lost its way and was now trying to divert attention from its own weaknesses.

Graham Hearne, chairman and chief executive of Enterprise, called the document an elaborate selling brochure. 'Lasmo makes no case whatever for independence and instead talks about price.'

And in the City the document also received a cool response, with one analyst saying: 'It seems very thin. I don't see anything in their defence that wasn't expected.'

He said initial hopes of a rival bid were starting to fade, but he still felt the Enterprise offer undervalued Lasmo and the company would have to raise its price.

Lasmo shares slipped 2p to 154p in heavy trading. Enterprise rose 2p to 431p.

Lasmo plans to invest pounds 800m in exploration and development projects by the end of 1996, funded out of pounds 300m in cash and securities, pounds 396m from the rights issue and disposals, and a pounds 300m borrowing facility as yet undrawn. This was on top of continuing operating cash flow, which in 1993 was pounds 202m.

The company made much of projects like Liverpool Bay, but also underlined its competitive advantage in gas, the world's fastest-growing fossil fuel. More than half Lasmo's reserves are in gas, compared with less than 25 per cent for Enterprise. Mr Agnew underlined that gearing was only 31 per cent, though he did not deny that it would rise. But he refused to speculate on analysts' claims it would go up to 80-90 per cent.

Mr Agnew said: 'An independent Lasmo is best placed to maximise the value of its attractive assets. Enterprise needs Lasmo's new developments both to stem the forecast decline in its own production profile and to provide earnings to help meet its existing shareholders' dividend expectations.

'They concede that we have the assets and they do not. They do not have anything to spend their money on. Enterprise's offer treats Lasmo shareholders as second-class citizens with reduced dividend entitlements. Enterprise has failed to cover its dividend with underlying earnings in each of the last two years.'

In the war of words, Enterprise seemed most hurt by the claim it was treating shareholders as second-class.

'It is a bit rich coming from a company that has been cutting its dividend,' said Mr Hearne.

The offer is 27 new Enterprise 'A' shares and 12 Enterprise warrants for every 80 Lasmo shares. A dividend of 3p will be paid on the 'A' shares for each of the next three years.

Mr Hearne said: 'The Enterprise offer has been carefully designed to preserve the income of Lasmo shareholders and to provide enhanced participation in the future of the combined group. If there is any second-class paper around, it is Lasmo ordinary shares.'

He questioned Lasmo's financial resources, saying that selling assets was no way to build for the future. And he said that if Lasmo was such a strong company, why was its debt rating from the likes of Standard & Poor's so low? 'They are proposing to operate on the very boundaries of financial risk and imprudence,' he said.

Mr Hearne said the document had ignored the impact of Lasmo's debt and losses, and the inability to provide its shareholders with more than a token income.

'Lasmo's response makes little attempt to deny the value to be created by combining the two companies. On the contrary, by promoting its own asset base, Lasmo has validated the logic of Enterprise's offer, but still shows no understanding of what is really needed to extract value for shareholders,' Mr Hearne said.

View From City Road, page 21

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