Petroleum Africa
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Tuesday, March 18, 2014
There is another merger in the works of two firms with a big focus on Africa – TransGlobe Energy and Caracal Energy Inc. The two firms have entered into an agreement to merge the two companies by way of an exchange of shares pursuant to a plan of arrangement.
If the merger goes through it would make the merged firm one of the largest independent firms in Africa. Based on March 14 closing prices, the merged company would have a combined market capitalization of approximately $1.8 billion.
Both companies hold producing assets in the countries they operate in and their assets both have upside exploration potential. TransGlobe has substantial operated and non-operated holdings in Egypt and Yemen, while Caracal holds a similar amount of operated assets in Chad.
“This transaction will clearly benefit both companies and their shareholders, as the enhanced scale will expedite production growth and increase cash flow,” said Gary Guidry, Caracal’s president & CEO. “At its core, this transaction is about greater value creation for all shareholders of the merged company. Through the combination of complementary asset bases, we will create a solid regional platform for compounding reserves and production growth.”
Added Ross Clarkson, TransGlobe’s president & CEO: “Consistent with our onshore, operated, oil strategy, the combination will provide shareholders with significant organic production and reserves growth, while providing increased country diversification. Specifically, we’re pursuing additional upside of over four billion barrels of gross mean unrisked prospective resource, aggressively targeted with a fully funded drilling program. And as one of the largest independent oil producers in Africa, we will be well positioned for future value-enhancing growth.”
After completion of the transaction the combined assets and employees will operate under the Caracal name and will be led by Caracal’s CEO Gary Guidry and a combination of Caracal’s and TransGlobe’s current executive teams.
Pursuant to the arrangement, each TransGlobe shareholder will receive 1.23 new common shares of Caracal in exchange for each TransGlobe common share held. After completion of the arrangement the merged company will have approximately 238,503,645 shares issued and outstanding prior to adjusting for conversion of Caracal’s outstanding convertible debentures. After taking into consideration the conversion of the convertible debentures it is expected that current Caracal shareholders would hold approximately 65.6% and former TransGlobe shareholders would hold approximately 34.4% of the issued shares of the merged company.
Upon completion of the transaction, TransGlobe’s 6.0% convertible unsecured subordinated debentures with an aggregate principal amount of CAD$97,750,000 will continue to be obligations of TransGlobe, as a wholly-owned subsidiary of Caracal. The conversion price of the TransGlobe Debentures will be adjusted pursuant to the terms of the trust indenture governing the TransGlobe Debentures based on the exchange ratio under the arrangement. After completion of the arrangement, conversion rights will be into Caracal shares.
Following closing of the transaction, in accordance with its terms, Caracal intends to make an offer for the TransGlobe Debentures at Par plus accrued and unpaid interest. The repurchase offer will be made within 30 days of closing of the proposed transaction. Should a holder of the TransGlobe Debentures elect not to accept the repurchase offer, the debentures will mature as originally set out in their respective indentures. Holders who convert their TransGlobe Debentures following completion of the arrangement will receive common shares of Caracal.
Caracal’s CEO Gary Guidry has recused himself from the process of considering the arrangement because he served as a director of TransGlobe from October 2009 until March 11, 2014, when he resigned. Guidry owns the following TransGlobe securities: 40,000 TransGlobe shares, CAD$100,000 in TransGlobe convertible debentures and options to acquire 160,500 TransGlobe shares. His TransGlobe share ownership amounts to approximately 0.05% of the 74.7 million TransGlobe shares outstanding. Guidry’s ownership of Caracal shares, including beneficial ownership, amounts to 1,674,173 shares or approximately 1.14% of the 146.7 million current basic Caracal shares outstanding.
The Boards of Directors of Caracal and TransGlobe have each unanimously approved the arrangement agreement and have concluded that the arrangement is in the best interests of Caracal and TransGlobe, respectively.
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