View from City Road: Will it be Enterprise by a nose?

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The Independent Online
Enterprise's pounds 1.6bn bid for rival oil independent Lasmo looks destined to end in both a photo finish and a stewards' inquiry. A photo finish because despite yesterday's market raid, Graham Hearne, Enterprise's chairman, is not yet assured of success. A steward's inquiry because with the bulk of Enterprise's 10 per cent stake coming from Lasmo's largest shareholder, Phillips and Drew Fund Management (PDFM), there is bound to be the suspicion of a stitch up.

This had admittedly become one of the dullest, most uninspired and incompetent of contested takeover battles for a long time. Yet by any standards yesterday's events were extraordinary. Enterprise began the morning a rank ten to one outsider. Virtually every independent analyst in town had come out against its bid and the general opinion was strongly that it would fail.

By coincidence rather than design Enterprise is due to hold its 10th anniversary party in St James's Square on Friday - the day the bid closes. It looked destined to be a sombre affair, an occasion for recriminations. How could Enterprise, widely regarded as Britain's most thoroughbred oil independent, have lost to a disreputable old nag like Lasmo?

How indeed? The thought was clearly too much for Mr Hearne and his equally proud merchant bank adviser, SG Warburg, to contemplate. Reputations, as well as heads, were on the line. So they decided on the only course that could save them, a market raid. This is always a high-risk strategy. The hope is that enough shares are secured to tip the balance in the bidder's favour. The fear is that it will be insufficient to do the trick and the bidder will be left nursing big losses on an unwanted share stake.

So how to interpret yesterday's raid? A last desperate throw of the dice or the all-important clincher? Certainly the manner of its execution has so outraged and angered institutional shareholders excluded from the buying binge that it might well prove counter-productive. Those initially minded to accept might reject in a fit of pique. Worse, it seems PDFM, which as Lasmo's largest shareholder was always going to be the key, was able to offload up to a half of its 17 per cent stake at 169p a share, a cash price most other institutions would have killed for.

There can of course be no question of Warburg Securities having offered cash for half the stake in return for the other half being assented; such preferential treatment would breach virtually every rule in the book. Enterprise still doesn't know for certain which way PDFM will jump. Lasmo could conceivably still end up with the last laugh. This is unlikely, however. It is in the nature of transactions like these that the other half will now swing Enterprise's way. Whether it is enough is anyone's guess; Warburg clearly thinks it is or it would not have embarked on such a strategy.

Whether nay or yea, it's bound to prompt fresh calls for a change in the rules. After all, PDFM will have ended up with the part-cash bid the rest of the City wanted. On the other hand, though, PDFM backed its judgement in building up such a large stake in Lasmo, buying shares at prices others dismissed as crazy. Its investment strategy now looks inspired. If it finds itself in a privileged position, that is partly because it has worked hard to get there.