Total Energy Services Launches Offer for Savanna Shares
Sunday, December 11, 2016
Release
Total Energy Services Inc. Commences Offer for Outstanding Shares of Savanna Energy Services Corp.
Total Energy Services Inc. (TOT.TO) (“Total” or the “Offeror“) announced today that it has formally commenced an offer (the “Offer“) to the shareholders of Savanna Energy Services Corp. (“Savanna“) to acquire all of the issued and outstanding common shares of Savanna (the “Savanna Shares“) in exchange for common shares of Total (the “Offeror Shares“). Holders of Savanna Shares who accept the Offer will receive, in exchange for each Savanna Share acquired by Total under the Offer, 0.1300 of an Offeror Share.
Based upon the volume weighted average price of the Offeror Shares for the five trading days following November 23, 2016, the date Total announced its intention to make the Offer, being $13.40 per share, the consideration offered pursuant to the Offer has a value of $1.74 per Savanna Share. The exchange ratio was determined with reference to the $1.45 per share price at which Savanna has agreed to issue up to 27,950,000 Savanna Shares, as announced by Savanna on November 22, 2016 (the “Savanna Issue Price“) and represents a 15% increase from the exchange ratio contemplated in Total’s November 23, 2016 news release. Based on these values, the Offer represents a 20% premium to the Savanna Issue Price.
Effective November 29, 2016, Total entered into support agreements with certain Savanna Shareholders. The total number of Savanna Shares subject to the support agreements represents approximately 44% of the issued and outstanding Savanna Shares (prior to giving effect to the issuance of shares by Savanna in connection with the transactions announced by it on November 22, 2016).
Today, Total will mail the Offer and take-over bid circular (collectively, the “Bid Circular“), the related letter of transmittal and notice of guaranteed delivery (collectively, the “Offer Documents“) to Savanna’s shareholders (the “Savanna Shareholders“), registered holders of convertible securities of Savanna and other persons who are entitled to receive those documents under applicable laws.
Full details of the Offer are contained in the Bid Circular that has been filed with the applicable Canadian securities regulatory authorities, and securityholders of Savanna are urged to read the Offer Documents and to consider the important information set out therein. Copies of the Offer Documents may be obtained free of charge at www.sedar.comand may also be obtained free of charge upon request made to the Corporate Secretary of Total at 2550, 300 – 5th Avenue S.W. Calgary, Alberta T2P 3C4.
“We believe this is a compelling opportunity for Savanna Shareholders,” said Daniel Halyk, Total’s President and Chief Executive Officer. “By accepting this Offer, Savanna Shareholders will not only receive a full and fair price for their Savanna Shares but also a unique opportunity to retain equity exposure to the energy services industry through an ownership position in Total. Total has consistently demonstrated over its 20 year history a focused, disciplined and capital efficient approach to the operation of its business and the investment of its owners’ capital. This steady approach has resulted in Total equityholders consistently realizing an industry leading return on equity. The significant support expressed by Savanna Shareholders for the combination of Total and Savanna and for industry consolidation generally makes us confident in the value this Offer provides to Savanna Shareholders.”
Benefits of the Offer:
Total encourages Savanna Shareholders to consider the following factors, among others, in making a decision whether to accept the Offer.
- Continued Exposure to the Energy Services Industry through a Corporation with a Superior Track Record.Through its 20 year history, Total (including its corporate predecessors) has taken a focused, disciplined and capital efficient approach to the operation and growth of its business and has produced industry leading returns on equity without the excessive use of debt.
- Total Has a Demonstrated Track Record of Sensitivity to Equityholder Dilution.Total has been sensitive to the dilutive effect of treasury issuances of securities on equityholder interests and has been judicious in the use of new equity, which, in turn, has protected and enhanced the capital investments of quityholders. The last public equity offering completed by Total and its corporate predecessors was in September 2005 when Total Energy Services Trust raised $27 million. Since that time, Total has invested over $460 million in the purchase of property, plant and equipment (“PPE”), net of proceeds from disposals of PPE, and returned approximately $178 million to its owners through dividends, trust distributions and share buybacks. The $638 million invested in its growth and returned to its equityholders represents over seven times the $88.7 million of Total’s paid up share capital as at September 30, 2016.
- Offer Consideration Represents a Unique Opportunity to Acquire Common Shares of the Offeror.As a result of the prudence of Total with respect to treasury issuances of equity to fund growth and operations, potential investors have often found it difficult to obtain a meaningful ownership position in Total common shares, as such shares have not always been readily available for purchase through ordinary market transactions. Under the Offer, holders of Savanna Shares will have an opportunity to obtain an ownership interest in Total or enhance their existing Total ownership position.
- Superior Track Record of Completing and Integrating Acquisitions.Over the last 20 years, Total has completed over 25 acquisitions without ever having recorded an impairment in respect of such acquisitions, including goodwill.
- The Board of Directors of Savanna has Authorized the Issuance of a Significant Number of Savanna Common Shares at $1.45 per share and the Offer Represents a Meaningful Premium to the Savanna Issue Price. On November 22, 2016, Savanna announced that it had entered into two eparate agreements to issue, in aggregate, up to 27,950,000 Savanna Shares, or over 30% of its then issued and outstanding common shares, at a price of $1.45 per share. Those transactions are expected to close on December 15, 2016. The consideration ffered pursuant to the Offer represents a 20% premium to the Savanna Issue Price based on an assumed value of $13.40 per Offeror Share.
- The Directors and Officers of Total are aligned with the Total Shareholders to a Greater Degree than the Directors and Officers of Savanna.The directors and officers of Total own over 8% of the outstanding Total common shares whereas the directors and officers of Savanna own less than 1% of the outstanding Savanna Shares.
- The Offeror Continues to Pay a Dividend.Since 2009, Total has increased its quarterly dividend on three occasions and has never reduced it, making it one of the few North American energy services companies to not reduce or eliminate its dividend during the current industry downturn, which began in 2014. Total currently pays a quarterly dividend of $0.06 per share.
- Total Expects that a Combination with Savanna Will Give Rise to Operational Efficiencies. Total believes that meaningful synergies and cost efficiencies can be achieved through a combination with Savanna and estimates that at least $10 million of annual cost savings can be realized over time.
- Strong Pro Forma Balance Sheet.Given Total’s limited debt, unencumbered capital asset base and available unused credit facilities, the Offer will provide Savanna Shareholders exposure to a well-capitalized energy services business with no liquidity concerns.
- Exposure to a Larger Entity with a Lower Cost of Capital.The Offer will provide Savanna Shareholders with an opportunity to retain equity investment exposure to the energy services industry through an ownership interest in a larger and more diverse North American energy services company, with international exposure, that is expected to enjoy a lower weighted average cost of capital than Savanna and be better positioned to pursue future growth opportunities.
- Increased Diversification and Stability.Management of Total believes the combination of Total and Savanna will provide meaningful business and geographical diversification across several key oil and natural gas basins in orth America and Australia and provide Savanna Shareholders with exposure to the relative stability of the Offeror’s Compression and Process Services segment.
- Liquidity of Consideration.The market capitalization of the combined entity is expected to be in excess of $550 million, which should provide greater capital markets relevance and public liquidity.
- Likelihood of Completion. Given the existing levels of committed support from Common Shareholders, the payment of premium consideration and the absence of a market out or financing condition in the Offer, Total expects that the Offer will be successfully completed.
- Opportunity to Defer Canadian Taxation on Capital Gains. Taxable Canadian Savanna Shareholders who receive Offeror Shares as consideration under the Offer will generally be entitled to an automatic tax deferred rollover to defer Canadian taxation on any capital gains arising from the disposition of their Savanna Shares.
The Offer will be open for acceptance until 11:59 p.m. (Pacific Time) on March 24, 2017, unless the Offer is accelerated or extended by the Offeror (the “Expiry Date“) or withdrawn by the Offeror.
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