City & Business: Enterprise offer that everyone can refuse

'THE KEY thing is to have as short a chain as possible between the boardroom and those hairy brutes out there who actually find things,' said Lasmo's chairman Rudolph Agnew last month, as his battle to fend off Enterprise Oil warmed up.

Doubtless the brutes he had in mind were the macho men who swing from the underside of oil rigs to come up with the black stuff. But Mr Agnew could have been forgiven for meaning fund managers, the hairy brutes whose job it is to find likely prospects for their portfolios.

Neither Lasmo nor Enterprise appears to have had a sufficiently short chain to their big shareholders, to judge by the evenly divided opinions greeting Enterprise's final pounds 1.5bn offer, which closes on 1 July.

However, if Enterprise has fallen short of delivering a knockout blow, Lasmo has not exactly covered itself in glory. In his latest letter to shareholders the Lasmo chief executive, Joe Darby, manages just one sentence on his own company's accomplishments: 'Lasmo's management has successfully expanded its business beyond the North Sea and has many attractive growth opportunities.'

Nevertheless, both sides have much to be modest about. It is hard to muster an irresistible list of positive reasons for Enterprise's bid to succeed. For all the slick talk of complementary oil fields and cash flows, the fact is that we are only talking about putting two exploration companies together. This is not, as the saying goes, brain surgery.

Scope for economies of scale is limited. There will be some saving in overheads, but the odds are that many of Lasmo's exploration people will leave, denying the combined group valuable alternative sources of information and views of prospects. In the oil business, two heads are often better than one.

And with a total worth of pounds 3bn, Lasmo-Enterprise will still be a minnow in the oil business, condemned to dive in and out of the slipstream left by the big fish in the hope that it can find oil fields they have either overlooked or do not consider worth the time and effort to develop.

The logical conclusion of Enterprise chairman and chief executive Graham Hearne's case is that both companies should simply give up and offer themselves to British Petroleum or Shell. As Mr Hearne himself admits, Lasmo's board has produced no convincing arguments for continued independence. And the auguries for the oil price suggest Lasmo will continue to struggle.

Enterprise has the better financial record, and on that basis Lasmo shareholders should sell in the market and let Enterprise get on with it. However, that may not be an option for the hairy brutes among the institutional investors, many of whom hold shares in both companies. They should reject the bid - then demand either clear strategies or management changes at both companies. A strong chairman at Mr Hearne's side might be a good start.