Dana reluctantly recommends KNOC's £2bn takeover approach

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The Independent Online

Dana Petroleum's defence against an £18-a-share takeover bid by KNOC, the South Korean state-owned oil group, collapsed yesterday when an announcement from the Seoul-based company saying that it had already amassed a 64 per cent stake led Dana's management to reluctantly recommend the offer to shareholders.

Aberdeen-based Dana's statement to the Stock Exchange came hours after KNOC had declared victory in the protracted battle. Knoc needs to own 75 per cent of the company before it can de-list Dana, but requires 90 per cent before it can compulsorily buy up the remaining shares.

Last week, the Korean group said that it had built a 29.5 per cent holding. The deal will be worth nearly £2bn. Tom Cross, Dana's chief executive, is expected to make personally as much as £60m from the sale.

"This is not a surprise," said Nick Copeman, an analyst at Oriel Securities. "Tom was clearly trying to get a bit more for a recommended offer, but once KNOC got to 29.5 per cent the other day, it was always going to get done.

"It is difficult to say if KNOC are paying a fair price. It is difficult to put a value on exploration assets – if Dana's Anne Marie project [an oil exploration project in the North Sea] is successful, it could look like KNOC have got the company for a great price."

In addition to the North Sea, Dana has assets in Egypt and West Africa.

The Koreans' position has been helped by the support of some of Dana biggest shareholders in recent weeks, including Schroders, BlackRock and JP Morgan Asset Management, which collectively own 21.2 per cent.

Some analysts believe, however, that investors could have held out for a higher price. As recently as two weeks ago, Richard Nolan, of Daniel Stewart, said that "Dana should be valued between 2,270p to 2,465p a share, [an] 18 per cent premium to KNOC's offer". "KNOC has publicly stated it has very ambitious reserves and production growth targets," Mr Nolan added. "KNOC needs to more than double its production and reserves by 2012 – but opportunities for KNOC to meet these targets are scarce."

Relations between the two companies have soured since KNOC went hostile with its offer a month ago, saying it had no alternative after talks with Dana broke down. The British company argued that KNOC had repeatedly refused to accept a non-disclosure agreement, necessary to start due diligence.

Despite accepting the offer yesterday, Dana's statement yesterday reiterated that it was "highly confident in the standalone prospects" of the company, but conceded that a sale was now inevitable and in the best interest of shareholders.

"In light of KNOC's stated intention to de-list the company, today we are reluctantly recommending that shareholders accept KNOC's offer because we believe that this is now in the best interests of the significant number of Dana shareholders who have supported the company and not yet accepted," Dana's chairman Colin Goodall said.

KNOC's interest in Dana springs from domestic political pressure to increase oil production from its current 137,000 barrels per day to 300,000 barrels a day by 2012 to help allay South Korea's concerns about security of supply.