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Hess swoops on Lasmo
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November 6, 2000: 3:53 p.m. ET
U.S. oil explorer to buy U.K. counterpart for $3.5B in cash, stock
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LONDON (CNNfn) - Amerada Hess Corp. agreed Monday to buy Lasmo PLC, Britain's second-largest independent oil explorer, for $3.5 billion in cash and stock, giving Lasmo owners what analysts termed a handy exit from a stock that has lagged the market.
New York-based Amerada Hess is offering $3.5 billion (£2.4 billion) for Lasmo's outstanding stock, or 180 pence per Lasmo share, about 28 percent above the U.K. company's closing price Friday. Amerada Hess said it also will assume $1.6 billion in Lasmo debt.
The announcement drove shares of Lasmo (LSMR) up 25 percent, or 30.5 pence, to 176.5 pence in London.
"This acquisition of Lasmo expands our exploration and production business, strengthens our international reserve portfolio and extends our production profile," Amerada Chairman John Hess said.
Hess said the buyout will add to Amerada's earnings in 2001 and boost daily output to the equivalent of 582,000 barrels of oil - taking account of both oil and gas production - from 374,000 barrels now.
Tina Vital, oil and gas analyst with S&P Equity Research, said Hess paid a fair price for Lasmo compared with other deals in the industry.
"The way these deals are valued is by a look at the acquisition price on a per barrel oil equivalent (boe) basis," Vital said. "In 1998, the average price paid per boe was $7.42 per barrel and in 1999 it $5.66. For this deal they're paying $5.49, but the average is a bit higher than in 2000 -- the median this year is $6.91 -- so the price they're paying is lower than the prices this year and in 1998."
Jumping for joy?
Analysts said the offer would probably get a warm welcome from Lasmo shareholders, disillusioned by what is seen as lackluster management, a series of overpriced acquisitions, and a stock price that has fallen for much of the past decade.
"If I were a Lasmo shareholder, I'd be jumping for joy right now," said an industry analyst, who declined to be named. "This is the exit that shareholders have been waiting for. [This offer] is way over the top."
The analyst maintained that, on an inflation-adjusted basis, Lasmo shares have fallen 22 percent since they were first brought to market in 1977.
Lasmo was known to have put some of its assets up for sale, another analyst said, adding that the company "needed some sort of fundamental change. Investors had fallen out of love with the company - as they had with the rest of the sector."
The analysts said the deal would enable Amerada Hess to cut costs, boost earnings and expand internationally.
Hess, which has about 940 retail gasoline outlets in the eastern United States, has been working to build up its exploration and production businesses. The purchase will increase the portion of its assets devoted to those so-called "upstream" activities to about 76 percent by the end of 2001, from 59 percent at the end of this year.
"We're likely to see increased pressure on domestic oil producers to get bigger as the costs of finding oil and gas becomes more expensive," Vital said. "The mega mergers we've seen with the super majors like Exxon/Mobil and Total/Fina showed us that there is a cost advantage to spreading the risk of huge deep water exploration and production projects over a larger base and to having a variety of deep water reserve projects to choose from."
Hess is offering £98.29 ($142.52) cash and 1 new Amerada Hess share for every 78.7 shares that Lasmo investors currently own. Amerada Hess (AHC: Research, Estimates) shares fell $2.94 cents to $59.88 in afternoon trading Monday. The cash element accounts for 69 percent of the offer value, the companies said.
The announcement of the buyout sparked a 5.5 percent rise in shares of Enterprise Oil PLC (ETP), Lasmo's top U.K. rival. Analysts said Enterprise, which twice failed in attempts to buy Lasmo, and BG International, a unit of BG Group, could be considered potential takeover targets. BG Group (BG-) shares rose 2.3 percent.
Goldman Sachs and Salomon Smith Barney were financial advisers to Amerada Hess, while Cazenove and UBS Warburg represented Lasmo. 
-- CNNfn's Carmina Perez contributed to this report
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