View from City Road: Lasmo, the perfect fit for Enterprise

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The Independent Online
Unless it suffers a sudden overnight loss of nerve, Enterprise Oil will be making a near pounds 1.5bn hostile takeover bid this morning for its smaller rival Lasmo. No decision has yet been made, the company was emphasising yesterday after it was forced to confirm its interest by the Takeover Panel. But you didn't exactly have to be Sherlock Holmes to figure out from the coming and going of directors and advisers that the finishing touches were being put to one of the biggest deals of the year.

Lasmo is bound to disagree, but from this side of the fence it looks to be one of the most natural, logical and ultimately irresistible takeover approaches made in a long time. Lasmo has some wonderful assets, true, but in recent years it has been a walking disaster, living proof after its doomed takeover of Ultramar two and a bit years ago that one plus one, given a potent mix of bad luck and management incompetence, can be made to equal just one.

Enterprise, by contrast, has been a showcase of inspired management and leadership in a difficult market. If the battle was fought on record alone, there would be no contest; on any measure you care to take, Enterprise has far and away outperformed Lasmo. The industrial logic too, is compelling. It has long been clear that there are too many oil companies in the world; certainly there are too many North Sea independents. Putting Enterprise and Lasmo together would give the new company vital critical mass. Ironically this was the very same logic that led Lasmo to make its ill-judged takeover bid for Ultramar. Within months, however, it became clear that Lasmo was financially ill-equipped to cope with the deal and it has floundered ever since.

Lasmo has some terrific assets, but no money to develop them with. Enterprise, by contrast, has a relatively poor long-term development portfolio, but for the next two to three years, thanks largely to its Nelson North Sea oil field, the prospect of an extremely healthy cash flow. A perfect fit.

Lasmo will no doubt try to argue that with recent management changes and a fully underwritten pounds 219m rescue rights issue already under its belt, it should be given a second chance. There's little sympathy in the City, however. In the absence of a white knight, the outcome of this takeover scrap looks a foregone conclusion.