Mr Loudon said in a letter to shareholders New Dawn was offering A6c (NZ7.6c) a share in cash, representing a 43% premium to the closing value for the shares on the ASX on October 17.
"The background to the offer is that L&M Energy will shortly need more capital."
In June, Mr Loudon injected $A5 million ($NZ6.32 billion) into L&M by way of a bridging loan which subsequently became a convertible note following approval by shareholders.
The convertible note was necessary because L&M was projected to have expended all of its available funds by mid-2012, he said.
"I was prepared to support L&M at that time as there were no alternative sources of capital available to it. These funds are expected to be sufficient until the end of the first quarter in 2013. But beyond this time, further capital will almost certainly be needed."
It was possible the company could seek to raise the additional capital it needed from shareholders by way of a rights issue, Mr Loudon said.
But given current market conditions, and the nature of L&M's business as an exploration company, Mr Loudon "fully expected" that a rights issue would be heavily discounted from the current share price and highly diluting for those shareholders who elected not to participate.
Some of the company's larger shareholders had indicated they would not be prepared to participate in a rights issue and would like to exit their investment in L&M, he said.
"As shareholders will know, the market for L&M shares is highly illiquid, meaning that it is not possible for large shareholders to sell their shares on market. The combination of these factors has led me to conclude that the only real option in these circumstances is for me, through New Dawn Energy, to make a full cash offer for L&M Energy to all shareholders and option-holders."
The offer would provide shareholders with the opportunity to sell their shares in L&M at a significant premium to the current share price rather than face the possibility of investing further or accepting a heavy dilution of their shareholdings, Mr Loudon said.
The Otago Daily Times previously reported that L&M, in its various forms and subsidiary companies, has spent nearly $40 million in recent years exploring a variety of energy resources in the lower South Island. They included methane gas deposits around coal deposits near Kaitangata and Ohai. It is listed on both the New Zealand and Australian stock exchanges.
In March, L&M said it would persevere with its Southland efforts, despite its $3.4 million exploration programme not having identified commercial gas deposits. It also was exploring sites in Taranaki.
Craigs Investment Partners broker Peter McIntyre said L&M had promise but was continuing to struggle for cash.
Like other exploration companies, L&M used cash quickly.
Time was running out for the smaller exploration companies as larger, cash-rich companies looked for expansion opportunities, he said.
"Smaller companies are finding it hard to raise capital, especially in mining. We could soon be looking at the smaller companies being bought out by the larger ones. It comes down to the economies of scale."
L&M Energy
• Full takeover launched for shares
• L&M chairman Geoff Loudon forms new company for the takeover
• Nearly 72% of shares already committed to takeover
• Offer open for 30 days
