OAG360 Note: Takeover Offer = approximately C$108.3 million ($81.7 million)
Total Energy Services Inc. (“Total” or the “Company“) (TOT.TO) announced today that it currently intends, subject to market conditions and other considerations noted below, to make an offer (the “Offer“) to purchase all of the issued and outstanding Class A common shares (the “Strad Shares“) of Strad Energy Services Ltd. (“Strad“) at a price of $2.90 per Strad Share. Total anticipates that, under the Offer, holders of Strad Shares will have an option to receive, in exchange for each Strad Share, $2.90 cash or $1.35 cash plus 0.10 of a common share of Total.
The $2.90 cash Offer price represents an approximate 18% premium to the weighted average trading price of the Strad Shares on the TSX for the five-day period ended September 18, 2015 and an approximate 19% premium to closing price of the Strad Shares on the TSX on September 18, 2015.
Readers should note that Total has not yet commenced the Offer and should carefully review the cautionary statements set out below in this News Release respecting the status of the Offer and the factors that may cause Total not to make the Offer. Total has determined to announce its intention to make the Offer at this time to, in part, provide the board of directors of Strad with additional time, beyond the statutory minimum bid period, to consider the terms of the Offer in the context of the market and to assess the availability of strategic alternatives.
In this uncertain and challenging environment, Total believes the Offer terms reflect fair value for the Strad Shares. Strad shareholders who elect to receive common shares of Total in partial consideration for the Strad Shares they tender to the Offer will have an opportunity to retain investment exposure to the oilfield services sector (through the ownership of Total common shares).
In accordance with applicable Canadian securities laws, the Offer will not be subject to a financing condition. Total expects to fund the non-share portion of the consideration to be paid to Strad shareholders under the Offer with cash on hand and available credit facilities. Provided Total does not uncover or otherwise identify information suggesting that the business, affairs, prospects or assets of Strad have been materially impaired and assuming there is no material adverse change in general market conditions subsequent to today’s date, Total intends to mail a take-over bid circular to the registered holders of Strad Shares (as required under applicable Canadian securities laws) on or before October 9, 2015. Total expects that the Offer, when made, will remain open for acceptance for at least 35 calendar days from the date of mailing of its take-over bid circular.
Readers are cautioned that financial markets are currently experiencing significant volatility and that a significant adverse change in market conditions could cause Total to reevaluate the Offer and determine not to make the Offer on the terms noted in this News Release or at all. In addition, Total may determine not to make the Offer if: (i) it identifies material adverse information concerning the business, affairs, prospects or assets of Strad not previously disclosed by Strad; (ii) Strad implements or attempts to implement defensive tactics (such as a shareholder rights plan or the grant of an option (or similar right) to purchase material assets) in relation to the Offer; or (iii) Strad determines to engage with Total to negotiate the terms of a combination transaction and Total and Strad determine to undertake that transaction utilizing a structure other than a takeover bid (a plan of arrangement, for example). Accordingly, there can be no assurance that the Offer will be made or that the final terms of the Offer will be as set out in this News Release.
Total anticipates that the Offer will be subject to a number of customary conditions, including: (i) there being deposited under the Offer, and not withdrawn, at least 66 2/3% of the outstanding Strad Shares (calculated on a fully diluted basis), excluding Strad Shares held by Total; (ii) receipt of all governmental, regulatory and third party approvals that Total considers necessary or desirable in connection with the Offer; (iii) no material adverse change having occurred in the business, affairs, prospects or assets of Strad; and (iv) no adverse changes in market conditions.
Total currently owns 3,709,700 Strad Shares, representing approximately 9.95% of the total number of issued and outstanding Strad Shares (calculated on a non-diluted basis). Subject to market conditions and compliance with regulatory requirements, Total may, after the filing of its takeover bid circular, acquire up to an additional 1.86 million Strad Shares (approximately 5% of the outstanding Strad Shares), in the normal course on the TSX and other published markets.
Background to the Proposed Offer
High-level discussions between Total and certain Strad personnel began in August 2013, which culminated in Total submitting a combination proposal to Strad’s board of directors in February 2014 (following the engagement of financial advisors by both companies). That proposal contemplated the acquisition of the outstanding Strad Shares by Total for cash consideration. While certain members of the board of directors of Strad had indicated to Total that the concept of combining Total and Strad made strategic sense and that the consideration proposed to be paid by Total for the outstanding Strad Shares was consistent with the pricing expectations of the holders of approximately 35% of the outstanding Strad Shares (at that time), Strad rejected Total’s proposal, without explanation, and declined to engage with Total to move the combination discussions forward. In July 2015, Total again approached Strad in an effort to re-engage in combination discussions. On August 21, 2015, Strad’s board of directors advised Total, again without explanation, that it was not prepared to direct Strad management to engage with Total.
Reasons for the Proposed Offer
Total Expects That a Combination with Strad Will Give Rise to Operational Efficiencies:
Total is of the view that current challenging industry conditions and resultant customer expectations require the North American energy services industry to pursue opportunities to achieve material operating synergies and cost efficiencies and believes that the combination of Strad and Total would give rise to meaningful synergies and efficiencies. Through the elimination of duplicate public company expenses and consolidation of head office and certain Canadian field operations, Total estimates that at least $10.0 million of annual cost savings can be achieved over time. Total’s ability to achieve these cost savings is based, in large part, on Total’s ownership of a significant number of the properties (and associated facilities) utilized by its Rental and Transportation Services division. The timing of such cost savings is dependent in part on the terms and conditions of the various real estate leases under which Strad or its affiliates occupy operating locations – Total has not had access to the terms and conditions of those leases in light of Strad’s determination not to engage in combination discussions. Notwithstanding this uncertainty as to timing, Total believes that significant Strad facility lease and overhead costs may be eliminated by consolidating Strad field locations into locations owned by Total over time as Strad leases expire. As reported in its April 17, 2015 news release, an independent third party report estimated the value of Total’s real estate holdings at that time to be approximately $110 million. At December 31, 2014, the net book value of such real estate holdings (as recorded on the audited consolidated financial statements of Total) was $49.9 million.
By leveraging key customer relationships and achieving economies and efficiencies of scale, Total believes that the combined business would be better positioned to compete in the current challenging industry environment.
Liquidity for Strad Shareholders:
The Offer will provide holders of Strad Shares with an option to receive immediate liquidity through the receipt of all cash consideration. In addition, the Offer terms contemplate a cash/share alternative. Holders of Strad Shares who elect the cash/share alternative will be entitled to receive cash as partial payment for their Strad Shares, with the balance of the purchase price of their Strad Shares to be paid through the issuance of Total common shares. Strad shareholders who receive Total common shares, as partial consideration for their Strad Shares, will have an opportunity to retain equity investment exposure to the oilfield services sector – through an investment in a larger and more diverse North American energy services company.
Increased Diversification and Stability:
Management of Total believes the combination of Total and Strad will provide meaningful business and geographical diversification across several key oil and natural gas basins throughout North America. The addition of Strad’s estimated 4,100 pieces of surface rental equipment to Total’s 10,000 rental pieces is expected to result in a leading North American oilfield equipment rental company. Management of Total expects that utilization of Total’s fleet of 120 heavy trucks in Strad’s Environmental and Access Matting business would also give rise to revenue synergies and operational efficiencies.
Holders of Strad Shares who elect to receive Total common shares under the Offer (as partial consideration for their Strad Shares) will obtain an investment in the second largest Canadian natural gas compression company (Bidell Gas Compression) and the eighth largest Canadian contract drilling company (Chinook Drilling).
Advisors
Total has retained FirstEnergy Capital Corp. and AltaCorp Capital Inc. as financial advisors in connection with the Offer. Bennett Jones LLP is acting as legal advisor to Total.
About Total
Total is a growth oriented energy services corporation involved in contract drilling services (Chinook Drilling), rentals and transportation services (Total Oilfield Rentals) and the fabrication, sale, rental and servicing of natural gas compression (Bidell Gas Compression) and process equipment (Spectrum Process Systems).
Total has a proven 18 year track record of industry-leading returns on invested capital and has successfully completed over 20 strategic acquisitions since 1997. Total’s balance sheet is strong and it has paid a stable dividend to its shareholders. Directors and Officers of Total are aligned with Total’s shareholders through their meaningful ownership position in Total, which position has been increasing over the past 12 months. The common shares of Total are listed and trade on the TSX under the symbol “TOT”.
The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.
This News Release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction.
