Shareholder pressure appears to have paid off for investors in Dragon Oil (LSE: DGO). Emirates National Oil Company (ENOC) announced this morning that it has increased its offer for Dragon shares to 800p, a rise of 6.7% from a previous offer of 750p.
Shareholders who have already accepted the 750p offer don’t need to do anything. ENOC says that all acceptances will automatically be transferred to the 800p offer.
The new offer has the backing of Dragon’s two largest shareholders, Baillie Gifford and Elliott Capital Advisors. Between them, these two institutions own a 13% stake in Dragon. They have been using their voting power to argue for a higher payout.
The backing of these two investors means that ENOC will now own or have received acceptances for more than 75% of Dragon shares. This will allow ENOC to de-list Dragon shares, a process which the firm intends to begin shortly.
You need to act now
Any Dragon shareholder who has not accepted ENOC’s offer needs to act fast. The ENOC offer will only remain open until 3pm Dublin time on 28 August 2015.
After this time, you may be left holding unlisted Dragon shares which will be almost impossible to trade and effectively worthless.
In order to avoid this risk, Dragon shareholders need to accept the ENOC offer without further delay. Alternatively, shareholders can sell Dragon shares into the market, as long as the firm’s listing remains active. As I write, Dragon shares are trading at 799p, reflecting the certainty that the offer will now become effective.
Personally, I would simply sell my shares into the market today and receive instant cash, but whichever route you take, prompt action is necessary.
This is the final offer — there won’t be a higher bid.
Problems for sellers?
Dragon Oil has proved to be an outstanding investment for almost all shareholders:
| Time period | Share price gain |
| 1 year | 41% |
| 5 years | 87% |
| 10 years | 570% |
| Since listing (Jan 1999) | 4,745% |
Very few, oil stocks can claim gains like these, especially after the oil bear market of the last nine months.
However, until now, many long-term Dragon shareholders have preferred to receive Dragon’s generous dividend income and avoid the capital gain liability resulting from selling. This choice has now been taken away, as refusing to sell will probably result in a total loss.
This means that many Dragon investors could face a big capital gains tax bill for the current year.
If you expect to be in this position, it might be worth doing a bit of active portfolio management. Capital gains can be offset by losses, so if any of your investments have gone bad and you’ve been holding on in the hope things might improve, now could be a good time to sell instead.
Doing so could reduce your CGT bill, effectively reducing the size of your losses on any less successful investments.
New buying opportunities
In my view, having a large capital gains tax bill is a good problem to have, as it means your investments have been successful.
And if your investment in Dragon has yielded a profit, the volatile conditions in the market at the moment could present some attractive new buying opportunities.