View from City Road: No walkover for Enterprise

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The Independent Online
Every man and his dog seems to be taking on some kind of advisory role in the pounds 1.45bn takeover scrap between Enterprise Oil and Lasmo. The battle has already become a fee-earning gravy train reminiscent of Hanson's doomed assault on ICI, when the game seemed to be for each side to buy up as many advisers as it could if for no other purpose than preventing them from signing up with the other camp. The advice they were able to offer - which in some cases was of questionable quality - seemed to be a wholly irrelevant consideration.

Lasmo has already added Goldman Sachs to its traditional City merchant banker of Schroders, presumably with the purpose of seeking out a white knight in the US. No doubt a valiant attempt will be made to justify the fee but this column, at least, would be amazed if Goldman was able to come up with the goods. In addition, a great wealth of public relations men and other hangers-on have been bolted on to the advisory team.

The same is true of Enterprise, chaired by Graham Hearn, which has added Lehman and Robert Fleming to its main merchant bank adviser of Warburg. Robert Fleming is certainly a highly accomplished firm when it comes to big, contested takeover battles in the oil sector and without doubt fully deserves its place in the team. The fact that its chief executive, Bill Harrison, is married to Graham Hearn's sister-in-law cannot possibly have anything to do with it.

With all this star-studded advice it seems odd that, so far at least, the battle should have been fought on such an incompetent level. It has become like one of those amateur games of tennis where the achievement is not so much in delivering the knockout shot as merely returning the ball. With so much going for its bid in terms of industrial and financial logic, Enterprise's inability to get even a single ball across the net is perhaps the biggest surprise of all.

With all the agility of Eddie the Eagle on a bad day, Lasmo has managed to outclass Enterprise with a display of lucky returns that has left even its most loyal supporters speechless with incredulity. This, after all, is a company that has managed to lose its shareholders nearly pounds 1bn of value over the past two years. It should be a walkover for Enterprise. Why is it not?

To some extent it must be complacency and arrogance on Enterprise's part. Enterprise misjudged the pluckiness and fight of its opponent, which early next week is expected to issue a defence document. Its underlying message will be: 'Enterprise needs Lasmo more than Lasmo needs Enterprise.'

The truth of the matter is that both companies need each other. The pounds 219m being raised by Lasmo in a rights issue isn't enough to see the company through its present cash- flow difficulties. Without Enterprise or an immediate and sustained recovery in the oil price, Lasmo looks likely to be back cap in hand to shareholders within the year. By the same token, Enterprise needs Lasmo's development prospects to plug a glaring gap that begins to emerge in its production profile some three to four years out.

Together, the two companies will gain the critical mass capable of delivering a meaningful long-term return to shareholders. Apart, it will continue to be the same old cyclical game, played for so many years by the oil independents, of feast and famine - more usually famine. This is a merger that deserves to succeed. The only real issue is how much more Lasmo is able to squeeze out of Enterprise as the price of surrender.