VPC Venture Prod.

U.K. oil and gas producer Venture Production PLC (VPC.LN) admitted defeat in its defense against a hostile GBP1.3 billion takeover bid from utility Centrica PLC (CNA.LN) and recommended that all shareholders accept the offer.

Major Venture shareholders Larry Kinch and ArcLight Capital Partners, who previously said Centrica's offer was too low, have decided to sell their combined 19.2 million shares, equivalent to 12.8% of Venture's share capital, the company said.

Centrica already either owns, has acquired subject to settlement or has received valid acceptances equivalent to 58.7% of Venture shares, Centrica said Monday evening.

"The board of Venture continues to believe that Centrica's final offer substantially undervalues Venture. However, the board recognizes that, in the event that the offer is declared wholly unconditional, Centrica will have control of Venture," and any shareholders who do not sell run the risk of holding a minority stake in a de-listed company, said Venture in a statement.

Centrica welcomed the Venture board's recommendation to accept the takeover bid and said the offer will become unconditional following the settlement Thursday of the purchase of Venture shares, announced Aug. 21 and Aug. 24.

"We are pleased that the Venture board has recommended that its shareholders accept our offer, in the event that it is declared wholly unconditional," Centrica Chief Executive Sam Laidlaw said.

Venture's statement represents a significant step forward for Centrica, which has long been on the hunt for gas resources to make up for its declining reserve base.

"The deal sees us continuing our investment in the North Sea which is good news for our customers and shareholders. It further reduces our overall exposure to volatile movements in wholesale gas prices and helps secure U.K. energy supplies," Laidlaw added.

Venture's management strongly resisted Centrica's offer of 845 pence per share, which it said substantially undervalued the company because of its growing output and a strong financial position.

However, Centrica's management seem to have judged correctly that the current economic climate was ripe for a bargain.

"Centrica's hostile bid success seems to have been all about timing - taking advantage of cash-strapped fund managers who prefer the cash in the hand today versus promises for the future, especially when Venture's track record for delivery has not been unblemished," said a research note from Evolution Securities.

"(Venture Chief Executive) Mike Wagstaff will not go away empty-handed," said Evolution.

Wagstaff's 1.5% stake in Venture is worth around GBP20 million at Centrica's bid price.

Wagstaff can be safe in the knowledge that he will be in demand, as someone who can deliver cash returns in a sector preciously short of talent, Evolution said.

Rothschild, Lambert Energy, Oriel and UBS Investment Bank are acting as financial advisers for Venture on the deal.

Goldman Sachs International (GS), JP Morgan Cazenove and RBS Corporate Finance Ltd and Hoare Govett Ltd are acting as financial advisers for Centrica.

At 1407 GMT, Centrica shares were up 0.7% at 236 pence in a weaker market. -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com (Selina Williams contributed to this story.)

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