Here’s the latest from the FT’s Lex on the decision by KNOC to launch a hostile bid for Dana Petroleum:
Korea National Oil Corporation must want North Sea oil badly. Why else go hostile in its £18-a-share approach for Dana Petroleum, which values the UK-listed exploration and production group at nearly £1.9bn? The astonishing agression from the Asian state entity, which has seen similar deals slip away before because it was too timid in its approaches, has raised the stakes all around.
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Small wonder there’s a mini M&A boom at the moment – just at look at the cost of borrowing for big, stable companies like BHP Billiton.
Citigroup reckons the $45bn credit facility put in place by the miner to finance its hostile offer for PotashCorp is likely to be just 3-4 per cent.
Key conclusion is that funding cost at current rates will initially be <2% (3 month LIBOR ~33bps, 1 year ~91bps), but this is likely to increase to 3-4% as the US$25b “bridge” loan is termed out to 5 to 10 year fixed rate via the corporate bonds.
We were assuming a cost of funding for the deal of closer to 5%, which would have created an annual interest bill of around $2.1bn; we estimate the above facilities could drop the cost of funding by at least $1bn in the short term.
Obviously, the 3-4 per cent figure needs to be put in the context of sub-3 per cent 10-year US government bond yields and the Fed’s near zero interest rate.
Elsewhere this Monday:
- Can we solve two problems at once – unemployment and preparing for power down?
- Analysts warn of threat to oil price stability
- Peak oil alarm revealed by secret official talks
- What did we learn from the Gulf oil spill?