View from City Road: Lasmo battle pitches weak against infirm

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The Independent Online
With every utterance, the struggle between Enterprise and Lasmo grows more and more embarrassing. It has become a fight of the walking wounded; each time the parties lift a crutch to strike a blow, they fall over. Lasmo's final shots yesterday were of the pick-a-number-and-hope-everyone-believes-it variety. Thus its net asset value per share might be anything between 180p and 252p, the defence document says, but that assumes a rather more optimistic view on oil prices than most people in the industry hold.

Add the fact that this 'independent' valuation (you wonder how much DeGolyer and MacNaughton were paid for it) uses much more modest discount rates than everyone else in the industry and even the 180p absolute base value ascribed looks questionable in the extreme. Probable and possible reserves have apparently been valued on exactly the same basis as proven reserves, which to put it mildly is a pretty eccentric way of doing it.

Then of course there is DeGolyer's own opinion, buried away in the small print of the defence document, that 'net present value should not be construed to represent what a willing buyer and a willing seller would agree is the value of the property'. In other words the valuation isn't worth the paper it is written on. But you do not need us to tell you that. Lasmo and its advisers said it themselves when they were bidding for Ultramar two and a bit years ago. Valuations of this type are really just so much tosh, Lasmo said repeatedly when Ultramar went through the same exercise.

And there's worse. In its final offer document for Ultramar, dated 4 December 1991, Lasmo said: 'The prices paid for pure upstream companies tend, on average, to be at discounts of 25 per cent to takeover valuations . . . significantly the boards of upstream companies have often recommended offers at such levels'. On that basis Lasmo would recommend an offer pitched at 135p a share.

But then perhaps not. It is not as if Enterprise has made much of a case either. Graham Hearn's hope must now be that once Lasmo shareholders realise that the slightly improved all- paper bid he plans to put on the table next week is all that's on offer, they'll grudgingly fall into line. They don't like the junk paper he's offering, however, nor are most of them convinced of the logic of this bid.

It's going to be a close-run thing but a betting man would probably still put his money on Enterprise being the victor in this battle between the weak and the infirm.