Minority shareholders say Conoco bid for Gulf Indonesia too low

Some minority shareholders of Gulf Indonesia Resources Ltd. are complaining they are being "squeezed out" at an unsatisfactory price by majority shareholder Conoco Inc., which has bid to buy them out for US$329-million as part of a plan to grow its Southeast Asia operations, Canadian National Post reported Saturday.

The dissatisfied shareholders say the US$13.25 per share they've been offered is well below net asset value.

They say that Houston-based Conoco stands to win big from the purchase, which could pay for itself in four years based on the cash expected to be generated by the Jakarta-based company. Gulf Indonesia also has US$100-million sitting in its coffers and no debt, said one investor.

"Somehow the independent committee of the board didn't recognize this," said the shareholder, who asked to remain anonymous. "This is why myself and some other investors don't like this. We do not view US$13.25 as a fair bid for our shares and do not believe the GRL board put shareholders first."

Conoco, through its Canadian subsidiary, launched a cash offer in May for the 28 percent interest of Gulf Indonesia it doesn't already own. The company said the bid was deemed fair by Gulf Indonesia independent directors as well as independent advisors.

Scott Keller, analyst at DealAnalytics.com, a New York-based merger research firm, said yesterday several major shareholders appear to be unhappy with the price, but it's unclear whether they will muster sufficient opposition to get a better deal. The offer expires July 19 and is conditional on the majority of the minority tendering their shares.

Peter Hunt, a spokesman for Conoco Canada, said his company is aware of the concerns and heard "from one or two" unhappy shareholders. He said Conoco does not plan to increase the price.

"This falls into the category of 'You can't please all of the people all of the time,' " Mr. Hunt said. "It may be that some people feel unhappy with that because this is a lower price than the price they first paid for the shares, but that is a reflection of how things moved in the market, rather than anything that is within our control. So, our feeling is that having offered a 23 percent premium over what they could have gotten in the market that it's a pretty fair offer."

The offer is a far cry from the US$19.50 price at which the stock was sold in an initial public offering in 1997, when Texan J.P. Bryan was in charge. Mr. Bryan, chief executive of Gulf Canada Resources Ltd. at the time, spun off the stock because he felt the Indonesian assets were not being fairly valued.

But the stock collapsed a year later, after oil prices tanked in 1998 and '99, and then because of the financial crisis in Asia, causing investors to discount it for having all of its operations in a risky place.

Conoco became a 72 percent owner of Gulf Indonesia after its purchase of Calgary-based Gulf Canada for $9.8-billion a year ago.

Mr. Keller, one of the few analysts who follow the company, agrees the bid is "a little cheap," but doesn't see a higher offer, and neither does the market.

"The top ten holders, which control approximately 60 percent of the minority, would have to not tender in order for this to fail, and this doesn't seem likely to me. Given current market conditions, [they] ... might be just happy to take the money and go to the next thing."

Minority shareholders are in a tough spot, he said. If the bid fails, their shares are likely to languish since it's unlikely someone else will want a relatively small stake in a company where Conoco is in charge. (*)