Shell has offered 195 pence per share in cash, which Cove's directors said Wednesday they would recommend to shareholders.

Tuesday, Cove's shares closed at 154.5 pence, and analysts at Citigroup said the "valuation looks stretched" in a research note.

The price is an over 70 percent premium to Cove's closing share price on January 4, when Cove announced plans to sell, although investors were already betting on a bid at that point.

Cove's main asset is an 8.5 percent stake in the Rovuma Offshore Area 1, in Mozambique, where operator Anadarko (APC.N) has found over 30 trillion cubic feet of natural gas.

Nearby, Italy's Eni has also made major gas finds while, north of the maritime border, Norway's Statoil has made a find in Tanzanian waters.

Shell is the industry leader in freezing natural gas into liquefied natural gas (LNG) for export in tankers around the world, and so a presence in what is expected to emerge as one of the world's major LNG provinces is a logical step.

However, some bankers had questioned whether Cove's stake alone would make sense for an oil major like Shell. Big oil groups like to have material stakes of over 25 percent in projects.

In addition to Anadarko, Japan's Mitsui (8031.T) and Indian groups Bharat Petroleum and Videocon own minority stakes in the Rovuma license, and the values of these interests could now be marked up.

Cove also has interests in Tanzania and Kenya.

Morgan Stanley advised Shell on the bid, while Standard Chartered advised Cove.

($1 = 0.6321 British pounds)

(Editing by Mark Potter)

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