(Financial Post, 19.Nov.2018) — Ensign’s date change makes it more likely that it will emerge as the successful bidder for Trinidad, CIBC analyst says.
Rising temperatures in the battle between two Calgary drilling companies for ownership of a third were matched by rising share prices for all three on Monday.
Ensign Energy Services Inc. announced late Friday it will give Trinidad Drilling Ltd. shareholders less time to think about its hostile takeover bid, moving up its deadline for acceptance to Nov. 27 from Dec. 13.
That move puts its deadline ahead of a Dec. 11 meeting called by Trinidad to allow shareholders to vote on a friendly all-shares merger with Precision Drilling Corp., the largest driller in Canada.
In early trading on the Toronto Stock Exchange, Trinidad shares rose as much as 2.5 per cent, Ensign was up four per cent and Precision stock jumped eight per cent.
In its news release, Ensign said the Trinidad board of directors’ acceptance of an “inferior” Precision offer permitted it to change its deadline.
“Notwithstanding the significantly lower implied value of the Precision consideration for Trinidad shares, we are maintaining our offer price of $1.68 in cash for each common share of Trinidad,” said Ensign president Bob Geddes.
Both Precision and Trinidad said Monday morning they continue to support the deal they announced on Oct. 4, noting Trinidad shareholders will wind up owning 29 per cent of the merged entity and citing “synergies” of the merger.
Ensign’s date change makes it more likely that it will emerge as the successful bidder for Trinidad, said CIBC analyst Jon Morrison in a report.
“We view this to be a very astute move on the part of Ensign as it removes the safety net of its cash offer from expiring post the proposed friendly Precision-Trinidad deal and reduces the time horizon for Precision’s stock to increase and for the company’s exchange offer to be more competitive with Ensign’s cash bid,” he said.
Ensign insists the cash value of its offer of about $470 million now outweighs the all-shares offer by Precision because its rival’s stock value has fallen since it made its initial bid, dropping from about $540 million to less than $400 million at Friday’s closing price.
Precision will likely have to either raise its offer or hope for its shares to rise by at least 15 per cent to be considered a superior offer, Morrison said.
Ensign is in the “pole position” because it owns 9.8 per cent of Trinidad’s shares and needs only 50 per cent plus one of the shares to take control, agreed analyst Ian Gillies of GMP FirstEnergy in a note, pointing out that Precision needs to have two-thirds of the shares voted in its favour to win.
“We understand the timing of the Ensign cash bid for Trinidad has been opportunistically accelerated as markets have experienced recent volatility,” said Precision CEO Kevin Neveu in a news release confirming his support for his company’s bid.
Chairman Ken Stickland of Trinidad added separately his board still believes Precision offers the “best available option.”
“With the combination of the two companies, our shareholders have the opportunity to benefit from the future upside created through a highly competitive fleet, growing cash flow generation and improved efficiencies, including significant cost savings,” he said.
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