Shares in Faroe Petroleum soared more than 25% after its largest shareholder launched a £608 million takeover bid for the company.
DNO, a Norwegian firm which already owns more than 28% of Faroe, said it was offering a “considerable premium” for investors wishing to exit amid the uncertainty of the oil market.
Faroe urged shareholders to “reject DNO’s opportunistic, unsolicited and inadequate offer”, advising them to take no action in relation to their shares.
Some analysts also said the proposal undervalues the company, and urged investors to turn down the “low-ball” offer.
The bid confirmed growing speculation that DNO would make an offer, after the company bought its sizeable stake in Faroe earlier this year.
DNO’s executive chairman, Bijan Mossavar-Rahmani, said in the event of an acquisition, the firm would retain the “skills, knowledge and expertise” of Faroe’s employees.
“We intend to retain Faroe’s Aberdeen head office and each of the other offices,” he said.
Faroe has operations in the UK, Ireland and Norway. Mr Mossavar-Rahmani said its assets would be “better placed in the bosom” of DNO, Norway’s oldest independent oil and gas company.
Shares in Faroe closed 27% higher at 159.6p.
John Bentley, Faroe chairman, said: “DNO’s offer substantially undervalues Faroe on every applicable metric.
“The board is determined to defend our shareholders’ rights to receive an appropriate premium for a fully funded business which is actively progressing the delivery of its highly attractive growth prospects and is the only platform available which solves DNO’s strategic challenges.
“We believe that Faroe is worth substantially more than 152p per share and we urge shareholders to reject DNO’s opportunistic, unsolicited and inadequate offer.”
The offer comes on the back of weaker oil prices in recent weeks. The price of Brent crude has tumbled since hitting a four-year high in September, with a barrel trading at 60 US dollars on Monday evening.
Analysts at BMO said the offer of 152p per share was below their valuation of 170p per share.
“DNO’s bid looks opportunistic, coming on the back of recent weakness in commodity markets,” they said.
“Faroe’s strong balance sheet and growth trajectory means it is relatively well insulated against short-term oil price moves.”
Cantor Fitzgerald said: “While DNO’s significant existing stake may make a takeover now appear ultimately inevitable, in our view investors would be ill-advised to accept what is clearly a ‘low-ball’ offer.”
