Daily Oil Bulletin – Ensign Energy Services Inc. says it is varying certain terms and conditions of its all-cash offer dated Aug. 30 2018 to acquire all of the issued and outstanding common shares of Trinidad Drilling Ltd. to shorten the time period for acceptance of the offer.
Trinidad shareholders now have until Nov. 27 to accept the offer rather than Dec. 14, as provided for in the initial Ensign offer.
Ensign said it is entitled to shorten the time for acceptance of the offer as Trinidad has accepted an alternative offer from Precision Drilling Corporation in the form of Precision common shares whose value has declined by as much as 30 per cent since Oct. 4, the day before the Precision offer was announced.
"Notwithstanding the significantly lower implied value of the Precision consideration for Trinidad shares, we are maintaining our offer price of $1.68 in cash for each common share of Trinidad,” said Bob Geddes, president and chief operating officer of Ensign. "Ensign is committed to this transaction and to delivering value to Trinidad shareholders.”
Precision’s depressed share price means that Trinidad shareholders would not receive full value for their common shares and will be exposed to the continued and increased risks of high debt leverage as part of any new combined Trinidad-Precision entity, according to Ensign.
Trinidad, however, confirmed on Nov. 19 its continued support for a strategic share exchange merger. Following the completion of the Precision transaction, the combined entity will be one of the largest North American land drillers, operating a high-quality fleet of 348 rigs in key United States and Canadian basins, with an expanded international footprint, it said.
"Trinidad's board of directors continues to believe that the Precision transaction is the best available option for Trinidad shareholders, despite a recent market downturn in the oil and gas sector," said Ken Stickland, chair of the Trinidad board. "This belief is supported by the future long-term value creation expected from the combined entity, in which, if approved, Trinidad shareholders would own approximately 29 per cent and further evidenced by consensus analyst price targets."
With the combination of the two companies, Trinidad shareholders have the opportunity to benefit from the future upside created through a highly competitive fleet, growing cash flow generation and improved efficiencies, including significant cost savings, he said. “Those benefits, if achieved, are likely to deliver a superior return compared with either a standalone option or the inadequate Ensign offer."
Trinidad acknowledged that in the short term, the Precision share price has dropped due to market conditions, reducing the implied value of Trinidad shares under the Precision transaction. Trinidad's board, though, said it continues to manage its business for the long term and encourages investors to consider the long-term benefits this strategic merger with Precision offers.
The Trinidad board continues to unanimously recommend that shareholders reject the Ensign offer and vote for the Precision transaction by proxy or at a Dec. 11 meeting for Trinidad shareholders.
Precision said Nov. 19 that the waiting period under the Competition Act (Canada) expired Nov. 16 in relation to the combination with Trinidad and at Precision’s election. The expiration of the waiting period now satisfies the required Competition Act condition under the arrangement agreement between Precision and Trinidad.
“Successful termination of the waiting periods for both Canadian and U.S. competition acts marks a significant milestone in the regulatory review process for the Precision-Trinidad combination,” said Kevin Neveu, Precision president and CEO.
“We remain committed to the Trinidad board supported acquisition of Trinidad and have had a positive response from both Precision and Trinidad shareholders to our proposed combination,” he said.
“We understand the timing of the Ensign cash bid for Trinidad has been opportunistically accelerated as markets have experienced recent volatility,” Neveu added. “The Trinidad board stands by its recommendation to shareholders to reject the inadequate Ensign cash offer and support the Precision-Trinidad combination in order to realize the benefit of the transaction synergies and participate in the long-term upside in the combined company.”
Precision is firm on its offer and will not increase its bid despite recent market volatility, he said. “We stand behind the agreed pro forma ownership split of 29 per cent of Precision shares to the Trinidad shareholders and believe the Precision-Trinidad combination represents a significant value creation opportunity for Trinidad shareholders as outlined in our joint circular.”