Fired-up Baillie Gifford may snuff out £2bn bid for Dragon Oil

Published on Thursday 26 November 2009 20:54

BAILLIE Gifford may have scuppered a £2 billion takeover of an Irish oil company after a rare show of shareholder activism.

The Edinburgh-based firm, which manages more than 50bn in assets, opted to vote against the takeover of Dragon Oil, its first intervention of this sort for more than a decade.

Enoc, the national oil company of the United Arab Emirates, is offering 455p a share for the 48 per cent of Dragon it does not already own, an offer agreed by Dragon's board. The deal values Dragon, which is listed on the Dublin stock exchange, at 2.36bn.

Despite a protest movement – savedragon.com – quickly emerging, the shares, which also trade in London, quickly rose above 440p on expectations of a speedy takeover. But since Baillie Gifford, the next largest shareholder, said its stake – about 4.3 per cent – would be used against it, shares have been dropping on fear the deal may fall through. The group says long-term shareholders appear united against the deal.

While shareholders occasionally make their plans known on contentious votes, Baillie Gifford rarely does. It has not publicly intervened in this way since voting – unsuccessfully – against the hostile takeover of Argos by Great Universal Stores in 1998.

Richard Sneller, Baillie's head of emerging markets equities, told The Scotsman that the move was not part of a deliberate move into activism. "You'd be correct to read that it reflects the strength of feeling in this case, rather than any great strategic policy change at Baillie Gifford," he said.

Dragon Oil's principal assets are in the Caspian Sea, off Turkmenistan, with production of nearly 43,000 barrels of oil a day. Baillie Gifford said it believes Dragon's strong production growth will continue. Instead of a takeover, it argues, Dragon should switch its primary listing to London, which would give it exposure to a much wider pool of capital.

Sneller said he is not running a campaign against the deal, but has spoken to a number other shareholders since going public with his views. Long-term holders believed the offer was not "full and fair", he said.

"People who are looking to hold on to this share with a long-term time horizon are unanimous. I've yet to meet anyone with a long-term horizon who doesn't essentially say they agree and will vote against (the offer].

"People who do have shorter-time horizons have other factors at play, and we respect that."

Hedge funds are thought to be nervous about the situation. Yesterday, shares traded below 400p for the first time since the offer was announced. Closing flat at 400p, they are 12 per cent below the offer price.

Spokesmen for Enoc and Dragon Oil maintained that the deal on the table was fair, representing the certainty of cash. Both declined to comment on the move by Baillie Gifford.

The decision of JP Morgan, which owns about 3 per cent of Dragon, will be crucial, but it is not commenting.