DNO merger with RAK Petroleum wins approval

DNO International's shareholders clear the way for a merger with RAK Petroleum's oil and gas units in the Middle East and North Africa.

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OSLO // DNO International's shareholders approved a merger with RAK Petroleum's oil and gas units in the Middle East and North Africa after two months of wrangling over the issue.

At an extraordinary general meeting in Oslo yesterday, 77 per cent of shareholders voted in favour of DNO merging with majority shareholder RAK in exchange for DNO shares.

"This is a large and resounding endorsement by the shareholders of the company's board, the company's management and the company's direction and also of this merger," said Bijan Mossavar-Rahmani, the DNO chairman. "I'm pleased we have that larger mandate. With all the noise and all the disinformation and misinformation that has been floating around, the company has been damaged, unnecessarily so."

The transaction values DNO at US$1.64 billion (Dh6.02bn), or 9.50 kroner a share, and RAK's operating subsidiaries at $250 million. Criticism of the move prompted RAK to enter an agreement with a group of minority shareholders on Tuesday. The deal will create a company with operations in northern Iraq, Yemen, the UAE, Tunisia and Oman.

"DNO's ambition is to become a significant exploration and production company in the Middle East and North Africa region," Helge Eide, the chief executive, said at the meeting yesterday. "This merger creates a stronger platform for further growth. Growth will be done through transactions and acquisitions."

Berge Gerdt Larsen, a former chairman of the Norwegian company who was voted off the board in June, worked to prevent the merger, saying the deal undervalued DNO and blocked a possible higher bid from other interested parties, such as Tony Hayward's company, Vallares. Vallares bought Genel Energy International, also a regional producer, in September for $2.1bn.

"I'll give you a tip: Tony Hayward," Gerdt Larsen said at the meeting. "We're partners with Genel."

DNO rose 2.1 per cent to 6.70 kroner at the close in Oslo. The stock is down 26 per cent this year, valuing it at 6.4bn kroner (Dh4.16bn).

RAK, which will get about 43 per cent control of DNO through the deal, yesterday committed to reducing its stake to 30 per cent by the end of next year.

The agreement with the shareholder group also states that an independent committee including smaller investors will be set up to propose a member for the board. RAK would support such a candidate, Mr Mossavar-Rahmani said yesterday. RAK agreed to accept as many as 80 million treasury shares as partial settlement of the 153.4 million consideration shares it will receive, to reduce the dilution of shareholders' ownership as a result of the merger.

DNO yesterday said it had completed its open market partial tender offer for as many as 54.5 million common shares, which resulted in the company buying back 42.6 million shares at 7.50 kroner each. The company's stock of treasury shares after the transaction is 68 million shares.

The board's request for authorisation to increase DNO's share capital by as many as 100 million shares was not approved at the meeting. RAK as part of the deal with the minority shareholder group DNO Initiative agreed to postpone the capital increase until the details for a secondary listing in London next year had been established. The listing process would be accelerated, Mr Mossavar-Rahmani said.

DNO, the first foreign company to begin pumping oil in Iraq since the 1970s, is awaiting outstanding payments for its exports from the Kurdish region after receiving two payments this year. Iraq's central government agreed in February to resume exports from the semi-autonomous region and pay foreigners while it sought to resolve a dispute over oil contracts with the regional government. The Kurdish region accounted for 88 per cent of DNO's output last quarter.

DNO said in September that merging with RAK would add 7,500 barrels of oil equivalent a day (boepd) to its average working interest output of 45,000 boepd. RAK's contribution would rise to about 15,000 boepd within a year after the redevelopment of Saleh field off the emirate of Ras Al Khaimah, the companies said. The company's reserves would rise 15 per cent to 406.6 million boepd, according to DNO.

Mr Eide, the DNO chief, said in an interview that the company was already looking at "companies and projects" to acquire in the Middle East and North Africa, declining to specify where.

"Organic growth takes time and it's risky, and in the current global equities environment, there are tremendous opportunities to buy companies that are trading at 30 to 40 per cent of net asset value," Mr Mossavar-Rahmani said. "It's a lot cheaper now to buy oil on the London stock exchange or the New York stock exchange or Toronto by buying companies than it is to try to buy assets."

* Bloomberg News