View from City Road: Enterprise's Lasmo bid wins no fans

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The Independent Online
It seems to be a foregone conclusion that Lasmo will lose its independence; it has virtually no case to argue for it. Given the company's track record, it would have been easier to stand in the path of a tidal wave. But Enterprise Oil has signally failed to provide the coup de grace now that its pounds 1.4bn bid has finally seen the light of day. The offer left the market decidedly unimpressed. Loss of independence seems assured; whether Enterprise's terms are really the key to chaining Lasmo up and unlocking its value is another question.

The reaction was severe. Enterprise shares shed 21p to 424p while profit taking lowered Lasmo by 5.5p to 157p compared with the nominal worth of 150p ascribed to Enterprise's bid. Nominal because analysts reckoned that the package was worth as little as 137p after the Enterprise price fall.

Enterprise's ambitious leap to a world-scale exploration and production company - it will still be a tiny player against the integrated Royal Dutch/Shell, Exxon and BP - has highlighted the fact that it has a medium-term production problem and needs to replenish its oil asset store.

The terms of its offer for Lasmo - a package of quasi-Enterprise shares and fancy warrants - also serve to highlight the fact that it is straining to finance its dividend payments to shareholders. The package may prove too clever by half. UK investors are not wildly keen on rinky dink schemes of this type; they much prefer hard cash or proper shares.

In this case Lasmo shareholders are being asked to participate in Enterprise as a form of second-class citizen for the next three years, living with a lower yield with a warrant thrown in as a grudging sweetener.

The hard truth is, however, that although Lasmo shareholders may be able to squeeze a little more out of Enterprise, this may prove to be about the best that's on offer. No doubt there will be intense speculation over the next few months of rival bids but in the final analysis it's hard to see it coming to anything. Of the companies that might be interested, British Gas, maybe, but it already has a lot on its plate at present. Arco is too financially stretched even to contemplate such a move. Total is too small. Mobil, possibly, but it would have to pay hard cash and Lasmo already looks pricey at this level. It's possible there will be a rival bid, but it looks unlikely.