Third time lucky for Eni as Burren accepts bid

Burren Energy finally agreed to a 1.76bn takeover by Eni yesterday, having twice rejected lower offers from the Italian oil major.

The deal, recommended by the board of the FTSE-250 oil explorer and producer, came just over a week after Eni refused to meet Burren's demands to sweeten a previous 1,200p per share offer and walked away from takeover talks. After shareholders expressed dismay at the evaporation of an attractive offer and a sharp drop in Burren's share price, the company is understood to have re-approached the Italians.

The new 1,230p-per-share bid represents just a 2.5 per cent increase on its previous offer. "This looks like a face-saving move from the management," said Richard Griffith, at Evolution Securities. "I suspect that there was a behind-the-scenes reaction from shareholders who were asking for a clear plan of how they were going to take the company to 12 and beyond."

There was also a massive financial incentive to do a deal for the company's executives, several of whom are now in line for major windfalls. Andrei Pannikov, the Russian oil executive who co-founded Lukoil and is a non-executive director of Burren, is in line for the biggest payday; he is set to receive 132m for his 10.7 million shares in the company. Pierre Lasry, another non-executive director, will make 130m from his holding, while the founder and president Finian O'Sullivan will pocket 63m.

Burren management has given irrevocable undertakings equivalent to 21 per cent of the company's stock. These can only be rescinded if a new bidder offers at least 1,320p per share for the group, though that is seen as improbable due to the high valuation that Eni's offer bestows on Burren.

Prior to Eni's initial 1,050p per share bid in October, most analysts had rated it in the 10 to 10.50 range. The takeover represents a 50 per cent premium over Burren's pre-bid 3-month average price. Korea Nat-ional Oil Corporation had made an 11 per share offer, but is not expected to re-enter the fray.

Eni was keen to gain greater control over the M'Boundi oil field in the Democratic Republic of Congo, a project in which it was already a partner with Burren. Burren's trio of oil fields in Turkmenistan, already in production, were also highly desirable.

The deal is the latest in a series of approaches to smaller, independent oil groups. Given the rising cost of finding and development (F&D) for fresh oil, and the relatively cheap valuations of independent groups, analysts expect others to be taken out by the oil majors, with Premier Oil, Cairn Energy and Venture Production at the top of the list.

"The big oil companies are looking closely at doing deals because the actual cost of finding and developing oil is higher than what it costs to just buy a company on the stock exchange," added Mr Griffith. "There are other players out there that are takeover targets."

Based on Burren's 217 million barrels of proven and probable reserves, Eni paid $16 per barrel for the company, which is about equal to the industry's average F&D costs. Premier Oil, for example, is trading at about $13 per barrel, making it a prime target.