Barrett Resources wasn’t quite ready to circle the wagons onFriday to fight off a hostile takeover bid by Royal Dutch ShellGroup, but it did give Shell the cold shoulder. Barrett said itwould begin an open bidding process to consider proposals from “anumber of qualified parties, rather than commencing negotiationssolely with Shell under artificial deadlines that only serveShell’s interests.”

Shell last week launched the bid in an effort to increase itsnatural gas presence and gain a foothold in the second largestnatural gas basin of North American (see Daily GPI, March 8). Shelloffered $2.2 billion in cash and assumed debt, but showed awillingness to shift to a hostile takeover if needed.

When the offer was formally announced on Wednesday, ShellExploration and Production Co. CEO Walter van de Vijver said thathe was “hopeful that the Barrett board will respond favorably” tothe offer to pay Barrett $55 a share, or $1.8 billion. Shell alsowould assume Barrett’s $400 million debt. The offer was 24% morethan the independent’s stock price of $44.25 on Feb. 28. However,following Shell’s formal offer, Barrett’s stock skyrocketed nearly34%, finally closing Wednesday at $61.11. It had closed on Tuesdayat $45.62.

If Barrett rejects Shell’s offer, van de Vijver said, “Shellintends to commence a fully funded, all cash tender offer for alloutstanding Barrett shares.” He said the company would wait for anaffirmative answer only through Friday.

Thursday evening, Barrett made it clear that it would considerits strategic alternatives at its own pace and under its own terms.Meanwhile, giant Shell’s preemptory grab for the long-timefamily-run company, which is a respected pillar of the RockyMountain producing community, was not going over well at all inthat community. “The majors pulled out of here a long time ago.This stuff was too small for them to notice,” one source said.”Now, it’s worth something and they’re trying to rip it off withboth hands.”

“We are inviting Shell to participate in this process,” saidBarrett CEO Peter A. Dea. “If Shell attempts to bypass this orderlyprocess designed to maximize shareholder value, the board willconsider that action in due course. In the meantime, the boardurges shareholders to take no action with respect to their holdingsof the company.”

Barrett noted that Shell’s proposal was based on publiclyavailable information without the benefit of any due diligence withthe company. Barrett believes that, in properly valuing thecompany, Shell and other potential parties would find it highlyimportant to consider confidential, nonpublic information regardingthe company’s focused natural gas potential in the Rocky Mountainregion. Barrett said its management and advisors would assemblematerials to be shared with qualified parties. Participants will begiven access to a data room and provided with other detailed duediligence information. Final proposals will be requested by Barrettafter the participants have had an opportunity to conduct their duediligence. Barrett reiterated that it reserves the right to modifythe process at any time.

The acquisition would give Shell an “immediate material presencein the Rocky Mountain region,” said van de Vijver. Barrett’s gasand oil properties are primarily in the Rocky Mountain regions ofColorado, Wyoming and Utah, the mid-continent region of Kansas,Oklahoma, New Mexico and Texas, and the Gulf of Mexico regionoffshore Texas and Louisiana.

Shell is more than 100 times larger than Barrett in marketvalue, but analysts said Shell probably would go higher if itsfirst offer is rejected. Barrett apparently was approached by Shellinformally two weeks ago. Van de Vijver said he had spoken toBarrett CEO Peter Dea three times and said the discussions had been”friendly.” Barrett did not confirm the discussions.

Barrett could use Delaware laws, where it is incorporated, as apoison pill defense. Like other U.S. companies, the company’sstatutes enable it to issue a huge amount of shares if a hostilebidder makes a tender offer. However, Shell said it would useDelaware laws to protect itself and mount its bid because under thestate’s laws a process called “action by written consent” isallowed where a bidder gaining a majority of shares may takemanagement control of its target. The action would thus bypass thepoison pill.

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