Emirates National Oil Company said on Wednesday morning it was sticking with its Scheme of Arrangement (SoA) structure for its ₤1.1bn bid for Dragon Oil.
This is a key development in the deal for one reason — an SoA requires a shareholder vote in which ENOC cannot participate with its own 52 per cent stake.
Which is important because Edinburgh-based investment manager Baille Gifford has been kicking up a fuss since the deal was announced. It reckons ENOC’s 455p per share bid “materially understates the fundamental and strategic value of the company”, and had vowed to vote down the deal at the December 11th EGM.
So, how might next week’s vote pan out, and is there any chance it will be a dealbreaker?
Well, it’s here that M&A watchers start doing the (usually futile) back-of-envelope voting forecasts seen in bowling club presidency showdowns, and of course, Big Brother.
But it is fun to try anyway, so here goes. (Please take note of the well worn caveat: journalist + calculator (often) = mistake)
For the scheme to be accepted Dragon Oil and ENOC needs a 50 per cent turnout, and 75 per cent of those turning out to vote in favour.
Around 14 per cent of Dragon Oil is estimated to be held by hedge funds, 24 per cent held by institutional shareholders (including Baillie Gifford), and around 10 per cent of the shares are owned by retail investors.
Of the hedge funds, it is fair to expect all, or almost all, to vote and to vote in favour of the scheme. Risk arbitrage players want the deal to go through, not hold out for a better offer. That is 29.2 per cent of the vote in the bag for Dragon Oil and ENOC.
Of the institutions, the c. 5 per cent held by Baillie Gifford and Carmignac Gestion have said they will vote against the deal. While some of the larger funds such as Axa and Fidelity may have mulled the Gifford option, no one has so far spoken out and so are seen to be likely to go along with the Dragon Oil management.
Deal Reporter said this afternoon that JP Morgan Asset Management, which owns more than 3 per cent, is in favour of the deal.
So if we assume 80 per cent of institutional holders vote, and 95 per cent of those vote yes, that gives another 38 per cent to the Dragon Oil management.
Lastly, are the retail investors. This could swing things.
Not many of the retail investors are likely to vote, even if Dragon Oil have retained Georgeson as a proxy solicitation agent to round them all up. Of those who care enough to vote, a fair guess is that around half will vote in favour. But some are very angry about the deal.
Assuming 35 per cent turn up, and half of those support the deal, then the Dragon Oil/ENOC deal gets a further 3.6 per cent — taking the total votes to….
70.8 per cent in favour – not enough to pass the deal.
But, if 50 per cent of the retail investors vote, and 70 per cent vote for the scheme then you have 7.2 per cent added to the yeses, taking the total proportion of attending voters in favour to 74.4 per cent — a whisker away from approving the deal.
Got all that?
Again,this is based on a near 80 per cent turnout. If fewer people bother to vote, then the Baillie Gifford bloc’s c. 5 per cent has a greater proportional impact.
The main thing to note from the above workings is that things could get very, very close indeed.
Related links:
Chasing the Dragon (Oil) – FT Alphaville
Dragon Oil agrees £1bn Dubai buy-out – FT