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Barrett considers Shell bid
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March 12, 2001: 6:24 p.m. ET
U.S. gas and oil firm to consider $1.8B takeover bid, decide in 10 days
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NEW YORK(CNNfn) - Barrett Resources Corp. announced Monday that it will now consider the $1.8 billion takeover offer from Shell Oil Co., a unit of Royal Dutch/Shell Group.
Barrett's board will meet to formally consider the bid and make their recommendations to shareholders within 10 days.
"Until such time, the company urges shareholders to take no action with respect to their holdings of Barrett," Barrett said in a statement.
Barrett added that it has begun the process of pursuing strategic alternatives and is seeking proposals from qualified qualities. A spokesman for the oil firm declined to comment further.
 The Royal Dutch/Shell Group, the umbrella firm for the oil company, made a tender offer Monday to buy all outstanding shares of Barrett at $55 cash per share. Shell decided to bypass the board and go directly to shareholders.
"The prolonged auction process could be a distraction to Barrett employees, and have an adverse impact on their ability to effectively operate the business," said Walter van de Vijver, CEO of Shell Exploration & Production Co., the production arm of Shell Oil.
On March 8, Shell made an unsolicited bid for Barrett, offering $55 a share, which Barrett rejected. Barrett's directors had indicated they wanted more time to study Shell's approach to see whether other firms might be considering higher offers.
Shell's $55-per-share offer represents a premium of 24 percent over Barrett's price before news of the approach was published in February. Shell has said it would take on Barrett's $400 million debt.
Shell's offer is conditional on it winning a majority of Barrett stock, and shareholders have until midnight April 6 to decide what to do.
"We consider it a positive sign that Barrett's board of directors have said they are considering strategic alternatives, but it is not clear that they are committed to the sale of the company," Shell said in a statement. "That is why Shell has chosen to take its offer directly to Barrett shareholders, rather than participate in the auction process proposed by Barrett's board."
Barrett is a natural gas and oil exploration and production company, focused mainly on the United States, mostly in the Rocky Mountain region of Colorado, Wyoming and Utah. Barrett (BRR: Research, Estimates) shares fell by 52 cents to close at $62 Monday.
Shell Transport & Trading (SHEL), the London-listed arm of the world's No. 2 publicly owned oil company, fell 0.6 percent to 576 pence in midday London trading on Monday.
Other bids?
Analysts polled by CNNfn.com agreed that Shell's $55 bid was too low, with most pegging a good price for Barrett in the $64-to-$65 range. The Shell hostile offer will flush out other potential bidders, analysts said.
"Barrett's board feels compelled to get others to come in, even though Shell's bid is a 24 percent premium," said analyst Ray Deacon, of Dain Rauscher Wessels.
Barrett could go for as much as $67 a share, because it has a large asset base that allows it to grow production at a 10 percent-a-year rate while the industry is growing at 1 percent-to-2 percent, Deacon said.
Interested parties could include Phillips Petroleum Co., USX-Marathon Group (MRO: Research, Estimates) and Anardarko Petroleum (APC: Research, Estimates), analysts said.
Shell has been trying to acquire a Rocky Mountain natural gas provider for over a year, said analyst R. Lewis Ropp, of Frost Securities, who believes that a fair price for Barrett is around $65.
"Shell could have bought Barrett for less when they first initiated contact a year ago, but they tried to low-ball them at that time," Ropp said. "Now they are coming back at the top of the market and again trying to put out a low bid."
Meanwhile, a federal rule that prevents companies from owning more than 260,000 of net acreage in a state may prevent potential bidders from buying Barrett, said analyst Irene Haas, of Sanders Morris Harris.
Western Gas Resources (WGR: Research, Estimates) currently holds 490,000 acres in the Powder River Basin, while Barrett has 454,000 acres and Phillips has more than 225,000 acres.
"If they buy, Phillips (P: Research, Estimates) acreage will be large and they will max out under federal limits," Haas said, who has a $64 price target for Barrett.
Ropp, of Frost Securities, said Shell's bid will bring in rival offers but that ultimately Shell will prevail. However, the company will probably have to come back with a higher proposal than its $55 offer.
"Shell will [probably] increase its bid and back off from its hostile stance because they don't want to disenfranchise Barrett employees that they need for growth in the Rocky Mountains," he said. "They want the assets and they think it is the right platform to expand in the Rockies."
Philips shares dropped by $1.21 to close at $56.27, USX-Marathon tumbled by 38 cents to $28.97, and Anadarko fell by $3.96 to $66.56. 
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