State-run Korea National Oil Corp (KNOC) made a hostile $2.6 billion cash bid for UK's Dana Petroleum, reflecting South Korea's growing urgency to boost oil reserves.   

Seoul gave KNOC a $6.5 billion warchest this year to compete with energy-hungry Asian state firms aiming to secure future supplies for their growing economies. Chinese and other firms have so far outgunned KNOC in bigger M&A battles.

The biggest hostile bid by a South Korean firm comes after Dana's management earlier this month rejected KNOC's 1,800 pence per share proposal.
   
KNOC said it had no alternative but to take its offer to shareholders. "We are very disappointed that the board of Dana does not agree that 1,800 pence per share represents a full and fair value for the company," KNOC senior executive vice president Kim Seong-hoo said in a statement.    

The deal will top the purchase by KNOC, which explores and stores oil, of Canada's Harvest Energy in October for $1.7 billion.  Analysts saw a bid as positive for South Korea and KNOC.   

"This shows the will of the South Korean government, which has been trying hard to boost its presence in global resource markets, and we consider it positvely," Sean Hwang, head of the research team at Mirae Asset Securities, said before KNOC's confirmation of the bid.

Dana said last week it had ended takeover talks with KNOC after the Korean firm declined to sign an agreement that Dana sought before opening its books to KNOC. But KNOC said it was still eyeing the British firm, raising the chances of a hostile bid.

The North Sea and Egypt-focused explorer had said it would only let KNOC conduct due diligence, which could have led to a higher offer, if KNOC signed a non-disclosure agreement that investors said typically include clauses which would preclude KNOC from later making a hostile bid.

The bid from KNOC represents a 60 percent premium to Dana's closing price before the bid talks emerged. Shares in Dana closed at 1,711.71 pence on Thursday.   

At 18 pounds per share, the deal represents an enterprise value of around $12 per barrels of oil equivalent, not so high compared with historical multiples, but Dana's portfolio does not warrant such a value, analysts have said.

Dana's top institutional investors, including Schroders, BlackRock and JPMorgan Asset Management, have urged Dana to engage in talks, according to media reports, as its defences have been slipping, with shares trading well below the bid price.

The growing conviction that KNOC was committed to a takeover encouraged hedge funds to continue buying Dana shares in the past week.

Seoul gave KNOC the warchest with orders to raise the nation's production capacity to 300,000 barrels per day (bpd) by 2012 from 130,000 bpd in December.   

A deal with Dana will also help KNOC address perceptions of being a timid buyer, created after its failure to conclude deals in recent years. Competition for resources among Asian nations has been intense. Chinese and Malaysian state energy giants were big winners when Iraq opened up its massive oil reserves to foreign players in auctions last year, while KNOC was effectively barred from the competition. - Reuters