Korea Oil's Hostile $2.6 Billion Dana Bid Marks New Aggression

Korea National Oil Corp.’s $2.6 billion bid for Dana Petroleum Plc, the state-owned company’s first hostile takeover attempt, shows South Korea is turning aggressive to lock up oil supplies after acquisitions by Chinese peers jumped eightfold in three years.

South Korean companies made 17 bids for foreign energy assets, including U.K.-based Dana, in the past 12 months, compared with 40 Chinese transactions, Bloomberg data show. The takeovers are being driven by demand for oil products, which the International Energy Agency forecasts will rise by an average 3.8 percent a year until 2015 in emerging Asian economies.

Korea National Oil was outbid by China Petrochemical Corp. in the contest for Geneva-based Addax Petroleum Corp. last year, when China agreed to pay a 47 percent premium to the prevailing share price. The company, known as KNOC, learned from the Addax loss, offering a 59 percent premium for Dana in what would be South Korea’s biggest overseas acquisition this year.

“Losing Addax to China became a kind of blessing in disguise for South Korea as it’s become more aggressive in overseas acquisitions,” said Cho Seung Yeon, an analyst at HMC Investment Securities Co. in Seoul.

Dana, based in Aberdeen, Scotland, said yesterday in a defense document that KNOC’s 1,800 pence-a-share offer would “utterly fail” to compensate its shareholders. Its board rejected the bid, saying Dana is worth at least 18 percent more than KNOC’s offer. Dana closed at 1,809 pence in London trading yesterday, a sign that some investors expect a better bid to emerge.

‘Desperate’ for Oil

KNOC said in response today that Dana’s defense document doesn’t contain any information that alters its view on the company’s value. KNOC’s 1,800 pence-a-share offer is “full and final,” it said in a statement.

South Korea, which imports almost all its energy needs, used 1.5 percent more oil last year, according to the BP Statistical review of World Energy. China’s oil consumption rose 6.7 percent last year, while proven reserves in the world’s biggest energy user declined 2 percent in the past decade and will last 10.7 years at current production rates, according to the BP report.

“Asian oil companies are desperate,” said Gordon Kwan, the Hong Kong-based head of regional energy research at Mirae Asset Securities Ltd. “They’re not finding enough oil to replace what they’re consuming.”

Doubling Production

Kang Young Won, KNOC’s chief executive officer, said on Aug. 24 the company plans more acquisitions to meet a government target of more than doubling its production to 300,000 barrels of oil equivalent a day by 2012. That’s about 10 percent of South Korea’s daily crude imports.

Following a planned acquisition of U.K. North Sea assets from Suncor Energy Inc., Dana intends to boost production to about 70,000 barrels of oil equivalent by the end of the year. The company wants to quadruple its reserves by the end of 2012. It held 223 million barrels of proven and probable reserves as of last year.

KNOC, based south of Seoul in Gyeonggi, bought a 50 percent stake in Petro-Tech Peruana SA of Peru for $450 million in February of last year and acquired Canada’s Harvest Energy Trust for $3.9 billion in October.

“KNOC is demonstrating to the market that they can really close deals,” said Stephane Foucaud, a London-based analyst at FirstEnergy Capital. Foucaud said KNOC should get Dana because the offer is “extremely good.”

Less Political Opposition

South Korean companies may gain an edge against China by facing less political opposition to foreign takeovers, according to Cho at HMC Investment.

Cnooc Ltd., China’s biggest offshore energy explorer, abandoned an $18.5 billion bid for oil and gas producer Unocal Corp. in 2005 because of opposition in the U.S. Congress. Chairman Fu Chengyu said in April 2009 the company would focus on joint ventures overseas rather than takeovers, because “the world is not psychologically prepared for China’s rise.”

Jiang Jiemin, chairman of PetroChina Co., said in March that politics is the biggest risk the company faces in its expansion. China Petroleum & Chemical Corp. said July 30 BP Plc declined an offer by the company to buy some of its assets.

“There are some concerns about China’s dominance,” Cho said. “South Korea should use this to its advantage.”

‘Bulldozer’ Lee

South Korean President Lee Myung Bak, who earned the nickname “Bulldozer” for pushing through projects when he ran the construction arm of Hyundai Group, has lobbied for his country’s energy companies.

In November, Lee got personally involved in negotiations to build nuclear power plants in the United Arab Emirates. He traveled to the U.A.E. on Dec. 26, the day before a group led by Korea Electric Power Corp. won the $20 billion contract. Last month, Lee appointed Park Young Jun, his closest aide, as Vice Minister of Knowledge Economy to direct energy policy.

South Korean companies are set to spend $8.5 billion on Dana and the 16 other acquisitions announced in the past 12 months. Chinese companies are poised to spend $18.9 billion for the 40 planned deals, up from $2.3 billion three years ago.

“Acquiring companies means securing experts, technologies and networks that the companies have,” said Chung Woo Jin, a director at Korea Energy Economics Institute. “South Korea is building a track record in energy takeovers and learned a lot about M&A after recent deals.”

Dana has sent an e-mail to KNOC to say it is still willing to negotiate and agree to a takeover of the Scottish oil explorer, the Financial Times reported, without attribution.

Chief Executive Officer Tom Cross sent a letter to KNOC after Dana made a defense of its value and argued it is worth more than KNOC’s 1,800 offer, the FT said.

To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net.

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