FAROE Petroleum directors have insisted the hostile bid for the North Sea-focused firm from DNO undervalued it even as they conceded defeat in the battle for control of the company.

The board of Aberdeen-based Faroe threw in the towel yesterday after DNO put itself on track to acquire statutory control of the firm with a bid that valued it at around £640 million.

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The offer put Faroe’s chief executive Graham Stewart in line for a payout of around £13m in respect of his holding in the company’s shares and related options.

The Norwegian bidder announced yesterday morning it had acceptances of the offer in respect of 52.44 per cent of Faroe’s share capital. That took DNO’s holding above the 50% required for its offer to become unconditional.

DNO’s success followed a bitter war of words between the firms. Directors of Faroe accused DNO of making an opportunistic attempt to buy the company on the cheap against the backdrop of renewed oil price volatility.

Read more: Tensions rise in battle for Aberdeen oil firm

However, DNO won the day after increasing its offer to 160p per share on Tuesday from 152p per share.

Faroe said yesterday morning that as DNO’s offer was set to become wholly unconditional its board recommended shareholders should accept it, as directors of the firm intended to do in respect of their own beneficial holdings.

Filings show Mr Stewart held around 2.5m shares on January 3, worth £4m at 160p per share. He also held options over 5.4m shares under incentive and co-investment plans run by Faroe, which will vest following the acquisition subject to performance tests.

DNO’s success means Scotland is set to lose another stock market-listed company. These provide a valuable source of work for advisory firms as well as helping ensure the country retains the interest of investors that can provide growth capital.

The takeover could spark concern about the outlook for jobs at Faroe. The company employs 85 people, with 12 in Scotland and 64 in Norway.

However, when it launched its bid in November, DNO said it attached great importance to retaining the skills, knowledge and expertise of Faroe's operational management and employees.

DNO said it foresaw limited rationalisation, mainly targeted at corporate and support functions.

The acquisition will give DNO control of a significant North Sea portfolio that Faroe has amassed under Mr Stewart’s leadership.

A keen guitarist, Mr Stewart helped establish Faroe in 1998 after working at Aberdeen’s Dana Petroleum. Faroe focused on early stage exploration opportunities off the eponymous islands, where Mr Stewart has family links, before broadening its reach into the North Sea.

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The company has a portfolio that includes exploration, development and production assets.

It has focused activity in Norwegian waters in recent years to take advantage of the generous tax breaks provided for exploration firms but made a find off Shetland last year.

Mr Stewart, 58, was not available for comment yesterday.

The company said its board did not believe the offer represented fair value but recognised it would be declared wholly unconditional upon settlement of share purchases made by DNO yesterday.

“The Board considers that, following its initial investment in Faroe and in the conduct of its subsequent Offer, DNO has created considerable uncertainty for minority shareholders,” said Faroe.

It added: “The Board also notes that DNO has indicated that it expects to make changes to the Faroe Board and the Board therefore considers there to be no assurance that Faroe would continue to maintain its current corporate governance culture in line with UK corporate governance best practice.”

DNO insisted on Tuesday that its original 152p per share offer price was full and fair, even generous, especially in the light of weaknesses in the equity and commodity markets and recent newsflow from Faroe itself. The company failed to meet its target for acceptances by the first deadline.

Executive chairman Bijan Mossavar-Rahmani said DNO had listened to the market and believed it was in the interests of all parties, “save perhaps for a handful of Faroe directors”, to close off the process by increasing its offer.

Faroe’s directors won support for their view the increased offer undervalued the firm from some City specialists.

Yesterday, before Faroe directors conceded defeat, analysts at Cantor Fitzgerald said DNO was looking to secure control of one of the best UK-listed exploration and production companies at a bargain price.

Paul Mumford at Cavendish Asset Management, which held shares in Faroe, regretted the prospect of DNO succeeding with what he called a low-ball bid.

The company said yesterday it had divested its discretionary holding as it would not want to be a minority holder in Faroe due to the different management approach of DNO.

The offer by DNO will remain open until 1pm on January 23.

The company will apply to have Faroe’s shares delisted from the Aim market if it achieves 75% control.