View from City Road: Enterprising times for Lasmo investors

Lasmo shareholders who sold in the market at 165p a share in the immediate aftermath of Enterprise's bid can give themselves a well-deserved pat on the back; it's unlikely the shares will ever see that price again. Enterprise has so comprehensively mismanaged its offer that it now seems at least possible the bid will fail - a truly Houdini-like escape for Lasmo that most people wouldn't have given a chance a few months back. Certainly there's hardly any possibility of an alternative competitive bid appearing, (as this column has consistently argued), and plainly Enterprise is going to find it hard to raise its offer sufficiently to deliver a knockout blow. If you believe the public relations bluster from Rudolph Agnew, Lasmo's chairman, the battle is already as good as over and Lasmo is going to emerge with its independence intact. His approach seems to be that if he says it often and loudly enough, people might start to believe it. Foolishly, some have already followed Mr Agnew's lead and attempted to call the outcome.

It's always possible they'll be proved right but there's no gloom and doom in the Enterprise camp yet - this despite yesterday's further 9p slippage in the Enterprise price, reducing the value of its offer to just 120p a share. There's still a long way to go in this bid; we haven't yet seen Lasmo's final defence, which is due out by the end of the week.

The message Enterprise gets from the big institutions, which will ultimately decide Lasmo's future, is very different from the one Mr Agnew preaches. If Enterprise can tweak the offer back towards the 150p-a-share level, it will probably win. The big question is if, however.

Enterprise shares have fallen so precipitously since the bid began that a full-scale underwritten cash alternative offer has all but been ruled out. A small cash element may be added, but the offer will remain largely paper. The balancing act Enterprise has to perform is between making its offer sufficiently attractive to Lasmo shareholders for them to accept while ensuring that it is not unattractive to its own shareholders. Enterprise can weather a certain amount of dilution with the promise of things to come, but if it is judged to have paid too much, its share price will be hammered and any increased offer would become counter-productive.

Hardly anyone in the City not making money out of this deal thinks it a particularly good one. This is not a view shared in the industry, which generally commends the logic of it - but whoever cared what the experts think? Though Lasmo has done a fine job in undermining Enterprise's bid, it has yet to make much of a case for its own independence. Look hard at Lasmo and you will find not an ugly duckling transformed into a swan, but the same old ugly duckling it always was.