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update on fusion t/o

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    NEWS SNAP: Fusion Oil Snubs Sterling, Seeks Other Buyer
    By Mark Long


    LONDON (Dow Jones)--U.K.-listed Fusion Oil & Gas PLC (A.FOG) Thursday rejected a buyout offer from Sterling Energy PLC (U.SEY) worth up to GBP39.5 million, saying the offer undervalued Fusion and offered little advantage to its shareholders.

    Fusion, which holds exploration licenses off the west coast of Africa, said it believed it could get a better deal and was now in talks with several other potential buyers.

    Investors were pleased by the rejection, sending Fusion's shares up by 5.3% to close at 39.75 pence. Sterling had made an initial approach earlier this month, which Fusion also rejected.

    Sterling offered 3.5 new Sterling shares for every Fusion share, valuing Fusion at GBP39.5 million. Sterling also offered a partial cash deal, by which it would give 2.5 Sterling shares and 10 pence for each Fusion share, valuing the company at GBP38.1 million.

    Sterling's Chief Executive Harry Wilson said his company's offer had strong support from key institutional shareholders. Sterling owns 20% of Fusion, after buying holder Westmount Energy, and said the supporting shareholders represent an additional 20% of the company's existing share capital.

    "We'll be talking to a number of the other shareholders over the coming days," Wilson said, adding the expressed support for the offer was a mixture of irrevocable commitments and letters of intent.

    Sterling primarily produces natural gas in the Gulf of Mexico, and is keen to tack on potentially lucrative exploration acreage in west coast of Africa.

    But Fusion's Chairman Peter Dolan said Sterling would be a poor fit, with no deepwater exploration experience and no relationships with the host governments of countries such as Senegal, Guinea-Bissau, Mauritania and Cameroon.

    "Parachuting in a group of unknown management would unsettle the host countries," Dolan said.

    Likewise, Dolan noted, Fusion's people were unfamiliar with Gulf of Mexico gas production, adding Sterling's assets weren't terribly attractive, having a relatively short life and needing significant investments to maintain.

    Analysts agreed with Fusion's conclusions.

    "I don't see what the larger (merged) company brings to the table," said Deutsche Bank analyst Al Stanton, adding people bought Fusion shares in the hopes of big returns from exploration. "Receiving Sterling paper isn't the risk/reward game they were anticipating," he said.

    Fusion is at the beginning of a major exploration program, and awaits in October and November decisions by partner Amerada Hess Corp. (AHC) on whether it will drill on two key sites near Senegal and Cameroon.

    The lack of recent newsflow had kept Fusion's share price relatively unchanged since May, until Sterling's initial approach earlier this month.

    Sterling was looking to take advantage of this relatively low share price, before news started coming in from the exploration program, analysts said.

    Fusion's Dolan said he was originally planning to see through the first phases of exploration and sell the company in six to nine months, once the value of its West African holdings was uncovered.

    "Sterling have just accelerated things a bit," Dolan said. Now, "we are talking with people who both already are in the (West Africa) area and some that are not."

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