Shell's Bid for Barrett Continues; Other Offers Predicted
In a second lawsuit filed last week to prevent future legal roadblocks, Royal Dutch Shell Group asked a federal court to declare that its tender offer to take over Denver-based Barrett Resources Corp. complied with the regulations of the Securities and Exchange Commission, and that Barrett may not file a lawsuit on any merger-related issues except in the Delaware courts, where Barrett is incorporated.
In response Wednesday, Barrett's board of directors amended the company's bylaws to remove "certain long-standing provisions" relating to the ability of shareholders to take action by written consent. The deleted provisions required 60 days' advance notice for the nomination of directors by written consent and prohibited shareholders from amending the bylaws without convening a shareholder meeting.
Shell, which launched a formal hostile takeover of Barrett two weeks ago, said in its lawsuit that it expects the independent to block the $55 per share cash tender offer because the bid does not comply with SEC regulations (see NGI, March 12).
Shell, 100 times larger than Barrett, has offered $1.8 billion for Barrett, and with its rejection, is making good on a threat to carry its offer directly to Barrett's shareholders. Shell said its bid represented the "full and fair value" of Barrett, which was 24% higher than its closing price on Feb. 28 of $44.25. Since Shell's bid, Barrett's stock has hovered in the $61 range.
In one lawsuit, Shell wrote that "plaintiffs believe Barrett will seek to delay and defeat the tender offer through a meritless suit claiming that public disclosure filings violate applicable federal securities laws and regulations." Shell's cash tender offer is contingent upon an agreement by the Barrett board of directors to not apply the poison pill defense, the shareholders' rights plan that doubles the number of shares the buyer must acquire, thereby making the bid more expensive.
In the first lawsuit filed by Shell, the energy giant is attempting to preempt Barrett's poison pill defense by asking the Delaware Court of Chancery to revoke Barrett's bylaws restricting shareholders' rights to vote by written consent. Shell told the court that Barrett's bylaws are illegal and an improper barrier to its takeover bid.
Shell's acquisition of Barrett would give it an edge in the gas-rich Rocky Mountain basin, where most of Barrett's assets are. However, Barrett shareholders believe the company is worth considerably more than Shell's initial offer, and last Monday, the board authorized opening its data rooms to attract other buyers.
Barrett CEO Peter A. Dea said the board was looking for "proposals from a number of qualified parties," and said the bylaw changes announced are "shareholder friendly and consistent with our focus on maximizing shareholder value." He said Barrett would continue to "urge the company's shareholders to take no action with respect to their holdings of Barrett until the board has rendered a formal recommendation with respect to the Shell offer as required by law."
When it formally turned down Shell's offer, the Barrett board announced it had "reviewed, considered and rejected that proposal, and said it "will take all necessary steps to maximize shareholder value and that it had directed management to promptly pursue strategic alternatives, including seeking proposals from a number of qualified parties. That process has already commenced.
"In light of Shell's formal commencement of a tender offer at $55 per share, the board of directors of Barrett will meet to formally consider the Shell offer and make a recommendation to shareholders with respect to the offer within 10 business days. Until such time, the company urges shareholders to take no action with respect to their holdings of Barrett."
Analysts who cover Barrett Resources Corp. said that once the data rooms are opened, the Denver-based independent may have more than one cash-rich suitor interested in picking up the company's assets.
Dain Rauscher Wessels' analyst Ray Deacon said he thinks Barrett is easily worth $67 a share, and said he knows some of the shareholders think the price is "north" of that, closer to $75 a share. "If they go to the shareholders, the shareholders are going to say to Shell to raise their offer," Deacon said. "The way I look at it, is that there is a $53 hard net asset on the stock and the probable reserves add $14 per share. That makes it worth $67 and most of the shareholders think it's worth more."
Deacon said there is "so much cash flow in this high yield market" and several energy companies have the ability to buy Barrett, including Phillips Petroleum Co., Anadarko Petroleum Corp. and Alberta Energy Co. Ltd. "All of those companies have the capital to make it work."
Irene Haas, an analyst with Sanders Morris Harris, said she thought it was "not likely" that Shell would up its bid, but could if there were "serious counter offers." Haas said there were only a "limited number of players" who had the kind of flexibility that Shell has.
"Barrett is officially up for sale now, though," Haas said. "They will open their data rooms and take it from there. It will be a challenge for someone to match Shell, though," and she did not want to speculate on other potential buyers.
Shell's fully funded cash offer is conditioned upon it acquiring a majority of Barrett's outstanding shares. Its offer and withdrawal rights extend through April 6. Walter van de Vijver, CEO of Shell Exploration and Production Co. of Houston, said, "we continue to believe that the best choice is to accept our fully funded cash offer." He said Barrett's board had not called the $55 offer inadequate, speculating that the board thought it was in an appropriate range.
Of Barrett's decision to open its data rooms, van de Vijver said "the prolonged auction process could be a distraction to Barrett's employees and have an adverse impact on their ability to effectively operate the business. Under the auction process Barrett has established, it could take over two months before Barrett shareholders know if they have any further options."
Carolyn Davis, Houston
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