TOTAL EMERGES AS WINNER IN BID FOR SAVANNA.
Deal creates 2nd-biggest contract driller
• Total Energy Services Inc. has beat out a rival in its acrimonious and drawn-out $444-million hostile takeover bid for heavily indebted driller Savanna Energy Services Corp.
“It’s been a long process, we’re obviously pleased,” Total president and CEO Daniel Halyk said Monday after more than 51 per cent of Savanna shareholders accepted his company’s sharesplus- cash takeover offer in the face of a competing, negotiated deal between Savanna and competitor Western Energy Services Corp.
The $ 444 million value of Total’s deal is based on Monday’s share price, and includes debt. Western issued a press release Monday saying its directors were “understandably disappointed with the outcome of the bid.” The company did not respond to a request for comment.
Halyk said the combination of Total and Savanna would create the second-largest contract drilling company in Canada — Precision Drilling Corp. is the largest — and would also turn Total into a larger, better- diversified oilfield services player.
“We are in a tough industry right now, it’s uncertain,” Halyk said, referring to the prolonged downturn in oil prices and the resulting slowdown in oilfield activity. Investors and oilfield workers want “a financially stable, strong company,” Halyk said, adding, “Total brings that.”
AltaCorp Capital analyst Aaron MacNeil said in a research note that “Total’s acquisition of Savanna has clearly been a contentious process,” and added, “there is potential for continued animosity, however, we hope that both sides can put their differences aside and work together in the best interests of shareholders.”
After Total announced its hostile bid for Savanna in November, the target company attracted a competing bid from Western and had tried to convince shareholders to ignore Total’s bid over the past several months and as recently as Thursday.
Still, Halyk said he expected a friendlier and more co- operative relationship now that his company had become Savanna’s majority shareholder. “They’re rational business people,” he said.
MacNeil recommended Savanna shareholders that did not previously accept Total’s offer do so because “this is now the best course of action for the remaining shareholders of Savanna as this will limit the disruption of ongoing operations.”
Despite being Savanna’s largest shareholder, Total still has work to do to fully close the acquisition. It extended the time limit for remaining Savanna shareholders to tender their shares and Halyk said he plans to meet with Savanna’s lenders.
In a release, Savanna said the change in control of the company results in the company being in default with some of its credit facilities, though the company did not expect those lenders to act on the default.
“Total Energy has a balance sheet that is second to none in the Canadian energy services industry,” Halyk said, implying that lenders would be comfortable with Total taking over Savanna’s debt obligations though he said he didn’t want to speak for those lenders.
Savanna was $218 million in debt at the end of 2016, while Total had roughly $ 45 million in long- term debt in the fourth quarter of last year.
Savanna had also agreed to a $ 20- million break fee with Western, which is typical in negotiated deals if those deals fail to close but unusual — a Total release called it “disturbing” — in situations with competing offers.
Halyk said, based on his understanding of the contract, Savanna did not need to pay the break fee to Western and that he had instructed Savanna’s board “to take no actions that would result in that break fee becoming payable.”