Spartan prefers new suitor
Shares in Spartan Oil Corp. rose about three per cent Tuesday after it revealed Bonterra Energy Corp. is its unsolicited rival takeover bidder announced Monday.
It went on in a news release Tuesday to say Bonterra’s all-stock offer and proposed dividend increase made it the mathematically preferred suitor, especially considering the declining value of an allstock offer by its other claimant, Pinecrest Energy Inc.
On Nov. 21, Spartan recommended that shareholders accept an offer by Pinecrest to issue 2.738 shares in exchange for each Spartan share, a deemed $5.12 value per share or $427 million in total. Both companies are Calgary-based high-growth junior light oil producers.
But Pinecrest’s offer, based on Monday’s share price of $1.62, had fallen to just $4.44 per share or $370 million, Spartan said. Bonterra is offering 0.1169 of a share for each Spartan share and says, if the transaction is completed, it will increase its monthly dividend to 28 from 26 cents starting in March. Based on a closing price of $42.46 per Bonterra share on Monday, the offer represents a deemed price of $4.96 per Spartan share, Spartan stated.
The dividend increase bumps Bonterra’s offer to about $5.35 per share or $446 million, a 20-per-cent premium over the Pinecrest offer and worth switching recommendations despite a $12.5-million break fee that it will likely have to pay to Pinecrest, Spartan said.
Spartan has land holdings prospective for light oil in the Alberta Cardium and Saskatchewan Bakken plays.
Bonterra said in a news release its combination with Spartan will result in a “dominant Cardium-focused light oil producer. “The merger of Spartan and Bonterra is a unique opportunity for Spartan shareholders to participate, through their approximately 35 per cent ownership, in an established dividend-paying company that has demonstrable history of per share production and dividend growth through a variety of commodity cycles,” it said.
Chris Theal, president and chief executive of Kootenay Capital Management, said the new merger deal makes more sense than the original because Bonterra is a better partner. “I think what they offer a Spartan shareholder is a far more sustainable, dividend-paying platform than the Pinecrest offer. That’s the crux of it,” he said.
He said his company no longer owns any of the three companies but made a profit by shorting Pinecrest on the day of the Spartan offer. Shorting involves borrowing shares and selling them, then buying them back at a lower price and returning them, thus pocketing the difference. He said it would be difficult for Pinecrest to improve its offer.
Other potential bidders include Sinopec Daylight, which operates nearby, he said, but it’s unclear whether its Chinese ownership would allow it to buy a company under new Canadian stateowned enterprise takeover rules. ARC Resources Ltd. is also a neighbour in the Alberta Pembina region.
Spokesmen for none of Pinecrest, Bonterra nor Spartan immediately returned requests for comment on Tuesday.
Bonterra said the combined company would have production of about 11,500 barrels of oil equivalent per day (about 75 per cent liquids) with Bonterra’s 8,200 boe/d and Spartan’s 4,500 boe/d.
Pinecrest closed at $1.66, up four cents on Tuesday. Spartan was up 14 cents at $4.88 and Bonterra fell 36 cents at $42.10.