The gloves are off in the battle for Savanna Energy Services Corp.
Savanna on Monday began
The plays for the hearts and wallets of the oil-field service provider's shareholders come as the outlook for the industry has gotten murkier with a new slide in crude oil prices, which raises questions about drilling budgets among customers.
Savanna agreed on Thursday to a $235-million offer from Western Energy Services Corp., under which Savanna shareholders would get 0.85 of a Western share for each of their own. Based on Monday morning's stock trading, that would value Savanna at $1.99 a share.
Savanna is recommending its shareholders tender to Western's offer and reject an unsolicited $230-million bid from Total Energy Services Inc., which was sweetened last month.
Total is offering 0.13 of one of its shares, plus 20 cents in cash, for each Savanna share, which implies a price of $1.94 a share for Savanna. It first launched its takeover bid in December.
Both suitors are touting their deals as a way to gain efficiencies and better scale after two years of depressed market conditions that resulted in major layoffs and asset sales throughout the Canadian drilling and oil-field service sectors.
Western acknowledged in a statement on Monday that the bids are close in value, so it sought to explain why its friendly deal offers brighter prospects.
"Western is a prospective partner with deep experience and a business culture that lives and breathes contract drilling and well servicing. Total is a company which has to date only dabbled in Savanna's main lines of business," it said.
It's not yet known how uncertain market conditions might prompt investors to favour a cash option, however.
Following Total's bid, Savanna arranged $200-million in debt financing and a private placement of almost $19-million of stock with Alberta Investment Management Corp., Alberta's public-sector investment manager. It also began a formal search for a white knight.
Western said the friendly approach is better because "you attract more flies with honey than you do with vinegar." The company said it opened its books to both Savanna and AIMCo., and asserted that an agreed-upon outcome would translate into a business that could retain talent.
It pointed out the acrimonious communications between Total and Savanna, which have included charges of conflict among Savanna directors.
Indeed, early this month, Total issued a statement saying Savanna's refinancing was highly dilutive and "raises questions about the motivations of Savanna's board of directors and senior management, in that the course taken serves to entrench their positions."
It said investors holding 40 per cent of Savanna shares have agreed to support its offer, though Western asserts the lock-up agreements with Total are not, in fact, locked right up. It referred to them as "soft-lock lock-up agreements" that allow investors to tender to a superior bid.
"If such lock-up agreements had been unconditional, it is doubtful that Western would have entered into the arrangement with Savanna," it said.
Savanna said the hostile bidder had refused opportunities to agree to terms for viewing its confidential data. It noted Total had missed analysts' estimates in its fourth-quarter results, something the target would have expected had the two agreed to negotiate.
"Savanna only learned of this performance shortfall when Total disclosed it on March 8, 2017. Had negotiations concluded with Total prior that public disclosure, Savanna's shareholders might have been irreparably harmed," Savanna said on Monday.