Market Tracker weekly bulletin – 17 January 2019
A round up of key developments in corporate transactions covered by Lexis®PSL Corporate and Market Tracker this week, including an update on the hostile offer for Faroe Petroleum by DNO ASA, a look at the recommended offer for Flybe Group plc by joint venture company Connect Airways Limited and a response to press speculation by Premier Oil plc.
Faroe Petroleum plc offer by DNO ASA
On 26 November 2018, DNO ASA (DNO) announced a hostile cash offer for the entire issued share capital of Faroe Petroleum plc (Faroe). The original offer of £607.9 million at 152 pence per share was rejected by Faroe, who stated that it undervalued the company. Following this, Faroe published its intention to swap the interests of Equinor Energy AS for the interests in four production assets on the Norwegian Continental Shelf on a cashless basis. Faroe then circulated a defence document on 20 December 2018 and a second defence document on 4 January 2019, urging shareholders not to accept DNO’s offer on the grounds that, unlike DNO’s offer, the proposed swap and explorations would increase the value of the company.
On 2 January 2019, leading independent oil and gas consultants, Gaffney, Cline & Associates (GCA), prepared an asset valuation highlighting the inadequacy of DNO’s offer. GCA’s analysis concluded that in the current oil price environment Faroe's oil and gas assets were valued in the range of £695.4 million—£1.076 billion.
On 4 January 2019, DNO increased its shareholding to 30% and triggered a mandatory offer as provided in Rule 9 of the Takeover Code. On 8 January 2019, DNO increased it final cash offer to £641.7 million at 160 pence per share.
On 9 January 2019, Cavendish Asset Management (Cavendish), a minority shareholder of Faroe, announced that it considered DNO’s offer to be unacceptable and despite the increased final cash offer Cavendish believed that the offer remained low in comparison to the minimum independent valuation of 186 pence per share. It sold its shares to no longer be a minority shareholder in Faroe due to the change of management approach of DNO.
As of 11 January 2019, DNO acquired or has acceptance of 76.49% of Faroe’s share capital. It seems that the mandatory offer was triggered deliberately to speed up the process, resembling the acquisition of Sky plc (Sky) by Comcast Corporation (Comcast), where Comcast triggered a mandatory offer and eventually outbid the competing bidder Twenty-First Century Fox, Inc. in an auction for Sky managed by the Takeover Panel.
The mandatory offers of Comcast and of DNO suggest a possible trend in bidders triggering the threshold of a mandatory offer to motivate shareholders to accept offers, especially when the mandatory offer is subjected to an increase in offer price. The Market Tracker team will continue to monitor bidders’ actions and mandatory offers in 2019.
Flybe directors unanimously recommend £2.2 million offer
On 11 January 2018, Virgin Atlantic Airways Limited, Stobart Group Limited and Cyrus Capital Partners L.P. agreed to form joint venture company Connect Airways Limited to acquire Flybe Group (Flybe). Flybe’s board of directors unanimously recommended the offer. The offer was valued at £2.2 million at 1 pence per share, making it the lowest valued offer of 2018/2019.
Flybe’s share price took a hit on the announcement of the acquisition, falling from 16.38p per share to close at 3.75p per share on 11 January. On 15 January, Flybe announced that the terms had been revised to purchase the Group's main trading company, Flybe Limited (including Flybe Aviation Services Limited) and the digital company Flybe.com Limited for £2.8 million.
The recommended offer follows an uncertain period for the future of Flybe. On 22 February 2018, Flybe responded to press speculation regarding a possible offer by Stobart Group plc (Stobart) for its entire share capital, with an announcement urging shareholders not to take action and confirming that it had not received any approach from Stobart. On 22 March 2018, Stobart announced it was not intending to make a bid for Flybe, terminating the offer period for a possible offer.
In a trading update released on 17 October, Flybe announced that due to the ‘softening of the market’, profit figures in the second half of 2018 were predicted to be lower than market expectations. Flybe attributed this to an increase in the price of fuel and a weakened sterling. On 14 November 2018, Flybe conducted a strategic review ‘to address the current challenges facing the airline industry and maximise value for shareholders’ and also entered into a formal sale process. On 23 November 2018, Virgin Atlantic Airways Limited approached Flybe with a possible offer for the entire issued share capital of Flybe.
Connect Airways share capital is owned 40% by DLP Holdings, S.à.r.l., a company wholly-owned by funds managed by Cyrus Capital Partners L.P., 30% by Stobart Aviation, a wholly-owned subsidiary of Stobart, and 30% by Virgin Travel Group Limited, a wholly-owned subsidiary of Virgin Atlantic, the holding company of Virgin Atlantic Airways Limited and Virgin Holidays Limited.
Christine e Ourmières-Widener, CEO of Flybe said:
‘The Flybe Board therefore believes that, taking into account Flybe's current difficult financial position and the expectation that the pressure on Flybe's cash flow will continue, the Acquisition and funding from Connect Airways represent the most realistic means of securing Flybe's future and deliver an attractive option for Flybe's employees, pension scheme members and creditors.’
Equity Capital Markets
Premier Oil responds to press speculation
It has been reported that Premier Oil is considering a rights issue or placing to finance the possible acquisition of North Sea fields from the US oil group Chevron.
On 14 January 2019, the company released a statement outlining that there is ‘no guarantee that the group will bid in any process or that any process will complete’. The statement comes after shares dropped to 10% of their share price. Further updates are expected in due course.
ECON Reports on proposals to enhance powers of ESAs
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has published Reports on Commission proposals to upgrade the European Supervisory Agencies (ESAs) framework to ensure they can assume an enhanced responsibility for financial market supervision (Report A8-0013/2019), and to amend MiFID II and Solvency II to strengthen the role of the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) (Report A8-0012/2019).
The European Parliament has also published Report A8-0011/2019 on the Commission’s proposal to amend Regulation (EU) 1092/2010 to strengthen the role of the European Systemic Risk Board. For more on this story see our news article: ECON Reports on proposals to enhance powers of ESAs - (a subscription to Lexis®PSL Corporate is required).
Department for Business, Energy & Industry publishes update on EU exit preparations
The Department for Business, Energy & Industry Strategy (BEIS) has published an update regarding steps being taken to prepare businesses in the event of a no-deal Brexit. BEIS has also recruited 700 new staff to work on EU exit policy using additional funding allocated by HM Treasury for Brexit preparedness. For more on this story see our news article: Department for Business, Energy & Industry publishes update on EU exit preparations - (a subscription to Lexis®PSL Corporate is required).
UK mergers: £300,000 fine imposed on Ausurus and EMR for breach of initial enforcement order
On 10 January 2019, the CMA published a notice (dated 20 December 2018) of a penalty imposed on Ausurus Group Ltd (Ausurus) and European Metal Recycling Ltd (EMR) (its wholly owned subsidiary) for failure to comply with an initial enforcement order (IEO) issued by the CMA on 11 September 2017. The IEO related to the completed acquisition by Ausurus, through EMR, of CuFe Investments Limited (CuFe)—including its wholly-owned subsidiary, Metal & Waste Recycling Limited (MWR). The CMA imposed a total fine of £300,000 on Ausurus and EMR for two separate infringements of the IEO. For more on this story see our news article: UK mergers: £300,000 fine imposed on Ausurus and EMR for breach of initial enforcement order - (a subscription to Lexis®PSL Corporate is required).