Sunday 18 March 2018

Dividend cut is a 'thinly veiled threat'

Middle Eastern oil company ENOC says it has taken a ‘hands off’ approach to takeover target Dragon Oil
Middle Eastern oil company ENOC says it has taken a ‘hands off’ approach to takeover target Dragon Oil

Paul O'Donoghue

A PROPOSAL by Emirates National Oil Company (ENOC) for Irish-listed Dragon Oil to scrap dividend payments is a "thinly veiled threat to minority shareholders", it has been claimed.

Yesterday ENOC said that it will no longer support payment of dividend to shareholders, stepping up the pressure in its bid to take over the company.

ENOC, which owns 54pc of Dragon Oil, offered 750 pence per share to buy out minority shareholders of the firm in June. The proposal values Dragon Oil at about £3.7bn (€5.3bn). Shareholders have until the end of the month to decide whether to accept the offer or not. ENOC plans to delist Dragon Oil if its takeover bid is successful.

ENOC's majority stake in Dragon Oil would allow it to vote down any proposal to pay dividends at the company's annual general meeting.

ENOC also said it expects Dragon Oil, which produces oil from Turkmenistan, to face operational challenges in meeting its long-term target production of 100,000 barrels of oil per day.

ENOC chief executive Saif Al Falasi said: "As we see it, there are operating challenges associated with sustaining production at Dragon Oil's forecast levels. Mitigating these operating issues will likely require additional investments.

"That's why I don't see a need for Dragon Oil to maintain a dividend profile in the near term. These are difficult decisions for any publicly listed company and we see this as another reason for delisting Dragon Oil."

Dragon Oil refused to say whether or not it supports the ENOC proposals when contacted by the Irish Independent. Dragon's board has previously recommended that its shareholders approve the takeover offer. Several major shareholders in Dragon, such as Baillie Gifford and Setanta Asset Management, have said that ENOC's offer is too low and undervalues the company.

An analyst from Goodbody Stockbrokers said that it views ENOC's dividend proposal as "a thinly veiled threat to those shareholders who have argued that the ENOC offer for Dragon Oil at 750p per share considerably undervalues the firm. "With nearly 14pc of the share register potentially against the offer as it currently stands, one can only speculate that this announcement is a sign of ENOC's hardened stance. While ENOC may be unconcerned given that 23pc of the share register is required to block the deal as it stands any further shareholder dissent could possibly entail a closer outcome into the first closing date on July 30". ENOC declined to comment on claims that the dividend proposal could be viewed as a "threat" to minority shareholders.

A spokeswoman for the firm said: "To date, we have taken a 'hands off' approach to Dragon Oil's management and operations but we now believe that Dragon Oil will benefit from being a core operating subsidiary of ENOC, in conjunction with our existing midstream and downstream operations."

Shares in Dragon Oil closed up 0.78pc at €10.38 yesterday.

Irish Independent

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