Hostile takeover of Dana Petroleum likely

Dana shareholders keen to accept Korean National Oil Corporation's £1.7bn offer, despite board saying offer undervalues Dana

A hostile takeover of Dana Petroleum by South Korea looked increasingly likely today after the Asian bidder insisted it is not prepared to pay more than £1.7bn.

Responding to a spirited defence document from Dana which dismissed the bid as "inadequate", the Korean National Oil Corporation refused to budge, forcing the value of shares below the offer price of £18 and making it more likely that shareholders will accept the approach.

The Dana board had quoted an independent report that valued the shares at between £21.20 and £24.65 to justify holding out for a higher offer, but KNOC gave a detailed rebuttal of the arguments and said it would only put more cash on the table in the event of a third party entering the fray.

KNOC said in a statement: "KNOC continues to believe that its share offer of 1,800 pence per share, representing a premium of 59% to Dana's pre-bid speculation share price, provides compelling value in cash for Dana shareholders and incorporates full and fair value for Dana's entire portfolio of production, development and exploration assets."

Dana shares, which closed at £18.09 on Wednesday, retreated 1.2pc after the KNOC comments, dashing any hopes of even a marginally increased bid to gain a recommendation from its board.

"KNOC have basically kicked that (hope) into touch," said Oriel Securities analyst Richard Rose. "We think at 1,800 pence investors are going to take it and it will go."

Merrill Lynch, KNOC's adviser, already has letters of intent from over 50% of Dana's shareholder base to vote in favour of the Korean's offer and its largest single investor has already told Dana it should talk to KNOC.

The Koreans are also now free to begin buying shares in the market. Investors have until 23 September to accept the offer.

Dana had accused KNOC of failing to properly value its existing assets but the Koreans argued that those properties had been assessed by an independent auditor, RPS Energy, which has a "highly respected international reputation and significant experience in the North Sea".

KNOC also expressed concern about the potential costs for dismantling North Sea fields and platforms associated with Dana's recent acquisition of certain assets held by Petro-Canada UK (PCUK).

It worried about the "abandonment liabilities associated with the PCUK assets which could be very significant and are not assessed or disclosed in the defence document or the announcements".

But the Dana board said shareholders should not rush to accept the KNOC offer. In a statement it argued: "The board believes that the KNOC offer substantially undervalues Dana. The board, which has been so advised by RBS Hoare Govett, RBC Capital Markets and Morgan Stanley, unanimously recommends that you should reject the offer."

In a separate development, the House of Commons energy and climate change select committee said it would hear from BP chief executive Tony Hayward and the company's head of safety, Mark Bly, next Wednesday as part of the committee's inquiry into "UK Deepwater Drilling – Implications of the Gulf of Mexico oil spill".