Savanna Energy calls Total’s offer “inferior” to Western’s
Total Energy Services Inc. announced in connection with its previously announced offer to purchase all of the issued and outstanding common shares of Savanna Energy Services Corp., it has purchased through the TSX, 35,000 Savanna Shares. All of the shares were purchased on March 16, 2017, according to a press release.
On March 17th, Savanna issued a press release calling Total’s offer “inferior.” The Savanna Board, on the recommendation of the Special Committee, had unanimously determined that Savanna shareholders should continue to reject the offer from Total Energy Services Inc. to purchase all of Savanna Shares on the basis of 0.13 common shares of Total and $0.20 in cash for each Savanna Share. Savanna Energy shareholders are urged not to tender their Savanna Shares to the Total Offer.
After giving effect to the purchase of the acquired shares, Total now owns 185,000 Savanna shares.
In response to Total Energy acquiring more shares and becoming more hostile in its takeover bid, Western Energy Services issued a press release with a list of reasons (below) why Total’s offer is inferior to theirs.
Where Do Matters Stand Now?
Savanna Energy shareholders still have two competing business combination proposals to consider, one being the Arrangement negotiated co‐operatively between Western and Savanna; and the other being the very acrimonious hostile bid by Total. Using share prices on March 16, 2017, the market value of the Western offer to Savanna’s shareholders is $2.19 per Savanna share, while the market value of the Total offer is $1.92 per share. While Total has recently published yet another windy press release that tries to say that $1.92 is better than $2.19, the facts are that the value of the Western offer is now 14.1% higher than the Total offer.
- Western Has Materially Increased Its Offer Western’s initial offer to Savanna Energy, at the end of Savanna’s process, was already the best offer on the table. That offer was fully accepted by Savanna, as previously disclosed and represented consideration that Savanna’s board, on the advice of its financial advisors considered to be fair to Savanna shareholders. However, after fluctuations among the share prices of all three companies following announcement, Western determined that it was prepared to increase the consideration payable in the Arrangement to create a larger margin of difference, so that anyone with a calculator could readily see that the Western offer price is demonstrably higher.It has been publicly-disclosed that Total had entered into conditional, soft lock-Up Agreements with each of: Franklin Bissett Investment Management (“Franklin Bissett“); Invesco Canada Ltd. (“Invesco“); and Foyston, Gordon & Payne Inc. (“Foyston“). The terms of those agreements allow Franklin Bissett, Invesco and Foyston to tender to a superior offer, which is normal for fiduciaries of investors’ money. However, the lock-up agreements allow Total time to respond to a superior alternative transaction proposal. Accordingly, Franklin Bissett, Invesco and Foyston may have needed time in advance of the expiry of Total’s offer to avoid being compelled to tender their Savanna shares to Total’s inferior offer. These factors led to Western’s decision to increase the consideration payable on the prompt timeline it followed.
The potential for actual acceptance of the Total offer by Franklin Bissett, Invesco and Foyston runs the risk, of course, of depriving all Savanna shareholders of the higher value in the Western offer, because these shareholders’ cumulative holdings (43.5 % of Savanna shares) will be so highly influential in the outcome. Western continues to be most willing to engage with Franklin Bissett, Invesco and Foyston in relation to any further information needed in respect of the Western offer.
- “Where’s the Beef?” By now, it should be abundantly clear that Total neither wishes to increase its offer to Savanna to a higher price, nor to cede the opportunity to Western. Total’s strategy, instead, has been to argue, criticize, threaten and fight about nearly everything. If Total were to succeed in its bid, it is, of course, very difficult to see such an approach and such overall conduct being conducive to actually managing and operating Savanna’s complex businesses.In both an old restaurant advertisement and a prior U.S. political campaign, the question that was asked was “Where’s the Beef?” Despite Total’s various references to a purported willingness to pay more to acquire Savanna, including in Schedule “A” to its prior Notice of Variation, Western is the one which has actually put the highest offer amount on the table. Perhaps it is time for Total to put away its thesaurus and take out its chequebook, if it wishes to continue in the auction; or else withdraw in favor of the Western offer if it does not wish to increase its low offer, which Savanna has rejected.
- Western Still Knows More About the Drilling and Well Servicing Businesses; and Honey Still Works Better than Vinegar In addition to the better economics of the Western offer, Western remains the far better strategic fit for Savanna and has vastly more experience in, and commitment to, the contract drilling and well servicing businesses, than does Total. Total only derives a meagre 6% of its revenues from these lines of business. If Total were to be successful, it would then need to figure out how to manage the Savanna businesses properly, after having criticized and threatened litigation against the very people who are needed to work very hard to create continuity and to generate future results.What can Total be thinking in acting this way?
- Putting the “Break Fee” Question to Bed; and “If You Can’t Stand the Heat, Stay Out of the Kitchen” Total has used up an enormous amount of air time grumbling about the “break fee”. As previously discussed, similar arrangements are present in almost every non-hostile acquisition deal ever done.