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CALGARY – The recent selloff in global stocks could jeopardize Precision Drilling Corp.'s $ 1-billion deal to acquire smaller rival Trinidad Drilling Ltd. and complicate transactions to sell shareholders on the transaction.
When Precision announced on Oct. 5 that it would buy its indebted competitor Trinidad in an all-share deal, the value of that deal was just over $ 1 billion and surpbaded a hostile, cash bid from Ensign Energy Services Inc. for $ 947 million.
Trinidad's board declined the $ 1.68 per share all-cash bid from Precision's All-stock offer to shareholders. The all-stock bid, $ 1.98 per share based on the closing price at the time of the deal, represented at 7.6 per cent premium to Trinidad's closing price on that day.
Goal has global stock selloff has since flipped the relative value of the deals. Precision shares have fallen from $ 4.30 each to $ 3.20 each since Oct. 5 and now the Ensign is a premium over the Precision deal. At current prices, Precision is worth $ 1.38 per Trinidad share, an 18 per cent discount to Ensign's $ 1.68 per share cash offer.
The change in fortunes is setting up a more intense fight between Precision and Ensign for the support of Trinidad's shareholders. The target company's largest number declined.
"Our strong valued all-cash exposure has an important opportunity to realize immediate liquidity and certainty of value," said Bob Geddes, president and chief operating officer in an email.
"Precision Drilling's share price and the ongoing volatility in the commodity and equity markets, Precision Drilling's all-share proposal is a risky and inferior proposition for Trinidad shareholders," Geddes said.
Kevin Neveu Precision Drilling chief executive.
Gavin Young / Postmedia
Precision Drilling Chairman and CEO Kevin Neveu said the Trinidad shareholders have a strong preference for a share in transaction-based transaction.
"The timing is not helpful to us," Neveu said of the company's recent share price drop.
The stock market volatility has also affected other energy companies and has not changed its view of the transaction, which it has characterized Precision offering up to 29.1 per cent of itself in exchange for Trinidad.
"Calgary," said Neveu, adding that he did not expect his company would be "52-week long".
Trinidad declined to comment on this week, saying that their comments on the situation still hold. It was endorsed by the Precision deal and agreed to a $ 20 million break fee with Precision.
But the tumbling equity values have made the outcome of the fight between Precision and Ensign for control of Trinidad more difficult to predict. The TSX Capped Energy Index has fallen 14.5 per cent year-to-date, compared to an eighty percent drop for the broader index.
"We do not expect (Trinidad) investors in the future, but we believe that we need to be more precise." (GMP FirstEnergy badyst Ian Gillies said in a research note.
The timing is not helpful
Kevin Neveu, CEO Precision Drilling
Precision and Trinidad merger could save up to $ 36 million for the combined entity.
Neveu said the company would be releasing more information on the deal.
However, Precision's deal to acquire Trinidad could be "moot" at this point and investors should evaluate Precision as a standalone entity, Raymond James badyst Andrew Bradford said in a research note.
"Since (Precision's) all-equity offer is out of the money, the market's focus is towards the outlook for its existing business," Bradford said, adding that US oilfield drilling Demand is more robust than in Canada.
• Email: [email protected] | Twitter: geoffreymorgan
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