Total Energy questions timing of bid rejection
War of words with board of Savanna Energy
CALGARY• Total Energy Services Inc. has fired back at a statement from Savanna Energy Services Corp. that called on shareholders to reject Total Energy’s hostile takeover bid, saying the timing of the comments “raises questions” about the motivations of Savanna’s board.
Total Energy launched its hostile takeover bid for Savanna in November, kicking off a sparring match between the two Calgary-based oil and gas service companies in the form of competing notes to investors. Savanna’s board in late December called on shareholders to reject the all-stock offer, calling the bid “highly opportunistic.”
Total Energy CEO Daniel Halyk responded Tuesday by questioning the timing of the call for rejection, saying 44 per cent of shareholders had already agreed to the takeover at a previously lower offer, suggesting the board is acting in its own self-interest.
“Certainly there were a number of large shareholders with Savanna who were encouraging them to engage with us, and they refused to do that, and did a highly dilutive round of financing,” Halyk said in an interview. “I guess you can draw whatever conclusions you want from that in terms of what the motivations are.”
The spat between the two companies comes as lower oil prices bludgeon the valuations of energy firms, which has led to a few uncommonly tense disputes in Calgary’s corporate offices.
Discussions between the two began in September after a “significant shareholder” at Savanna approached Total Energy with the notion to merge the companies, according to a Total Energy information circular.
Halyk says the companies met briefly on two separate occasions in September and November.
Total Energy then announced its intention to offer one day after Alberta Investment Management Corp. ( AIMCo) agreed to finance Savanna with $ 200- million debt- with- warrants and a private placement of 13 million shares for gross proceeds of $18.85 million.
Savanna said the bid did not take into account rising commodity prices, which has modestly lifted the valuations of some oil and gas names.
Weeks after finalizing the financing, Savanna chairman Jim Saunders said in a note to shareholders that the bid was devised to “deprive Savanna shareholders of the value of significant positive recent market changes.”
Savanna’s management did not respond to requests for comment Tuesday.
Based on the share price of both companies Tuesday, the offer works out to $ 1.95 per share, according to Calgary-based CIBC analyst Jon Morrison. At the time of the initial offer, the value was roughly $1.82 per share.
Savanna stock was trading around $ 2.11 Tuesday, suggesting investors may be waiting for a higher bid, he said.
“Normally in these transactions, if you believe that a deal is going to get done, you’ll find the share price of the company being acquired will trade at a discount to the offer price,” Morrison said.
“The market is clearly betting on the fact that this deal doesn’t get done here, and/or Total will have to increase its offer price.”
The offer for the bid closes March 29.
Halyk said the offer represented a fair value for both companies over the long term. “Where we’re at in the cycle to me is irrelevant,” he said. “Ironically, most companies do the most damage when they’re making a lot of money, and then in the downturn need to pay for those mistakes.”
Total Energy plans to boost capital expenditures to $ 22.8 million in 2017, according to its preliminary outlook released Monday. In 2014, when oil prices began to slide, the company spent $59.2 million.