Canadian oil and gas producer Toscana Energy Income has agreed to acquire 100% of Cortona Energy for a sum of around $12m, subject to customary closing conditions.
Image: Toscana Energy to acquire Cortona Energy for C$12m. Photo: courtesy of adamr/ FreeDigitalPhotos.net.
In connection with the Transaction, the Company will acquire 100% of the Class A Shares and Class B Shares of Cortona for the aggregate price of $843,619.00, where the holders of Class A Shares will receive approximately $1.20 per Class A Share, and holders of Class B Shares will receive $1.00 in the aggregate for all of the Class B Shares.
Furthermore, the Company will repay the current debt of Cortona that is evidenced by a note in the amount of $11,156,381.00 plus unpaid accrued interest and expenses.
The repayment of the note will be satisfied by the payment of cash consideration in the amount of $8,000,000.00 plus $158,268.82 in respect of unpaid accrued interest and expenses up to the closing of the Transaction, and the issuance by the Company of a new secured subordinated note in the principal amount of $3,156,381.00 bearing interest at a rate of 9% per annum and repayable within two (2) years from the date of issuance.
On the basis of the recommendation by the special committee (the “Special Committee”) of the Board of Directors of the Company (the “Board”) that was established to consider the proposed Transaction, the Board unanimously determined (with directors who are conflicted, abstaining) that the Transaction is in the best interests of the Company, that the consideration payable by the Company pursuant to the Transaction is fair to the shareholders of Toscana, and recommends approval of the Transaction by disinterested shareholders of Company.
The Special Committee is comprised of a member of the Board who is independent of Cortona.
The anticipated benefits of the Transaction include: (i) it will consolidate the Company’s large oil in place in the Carmangay Barons Oil Pool, adding approximately 250 BOEs/d of light oil production; (ii) it will consolidate operatorship of the Carmangay Barons Oil Pool; (iii) it will result in the Company’s working interest in the Carmangay Barons Oil Pool becoming in excess of 90%; (iv) it adds long life, low decline light oil reserves; (v) it will result in the current net combined production from the pool being approximately 450 BOEs/d; and (vi) oil weighting of the Company would increase from 36% to 46%.
In coming to its recommendation, the Board received a report from the Special Committee pursuant to which the Special Committee outlined the rationale for recommending the Transaction to the Board including (among other things) the following factors and benefits:
the anticipated benefits to the Company as described above;
that the total consideration payable by the Company for Class A Shares is within the range of the formal valuation prepared by Sayer (as defined below);
the support received by the Company’s senior lender for the Transaction;
advice from Sayer as to the fairness of the Transaction (from a financial point of view) to the shareholders of the Company;
the required minority shareholder approvals necessary under MI 61-101 (as defined below); and
consideration given to the risks associated with the completion and non-completion of the Transaction, including the risks inherent with the Company’s status quo situation.
In considering the Transaction the Special Committee received a fairness opinion from Sayer Energy Advisors (“Sayer”) which indicated that as at the date thereof and subject to the assumptions, limitations and qualifications contained therein, the consideration payable by the Company pursuant to the Transaction is fair, from a financial point of view, to the shareholders of the Company.
The Special Committee also received a formal valuation of Cortona from Sayer, which determined a range of values for Cortona as at April 1, 2018.
Subject to the assumptions, limitations and qualifications contained in the formal valuation and pursuant to the results of the formal valuation, the consideration payable by the Company pursuant to the Transaction is within the range of values for the common shares of Cortona as determined by Sayer.
The fairness opinion and formal valuation will be included in the management information circular (the “Circular”) to be sent by mail to the shareholders of the Company on or about August 1, 2018 in connection with the approval of the Transaction.
Certain director, officers and former officers of the Company (being Donald D. Copeland, John Festival, Joseph S. Durante, Lew Hayes, Anand Ramnath and Glen Tanaka) are holders of Class A Shares of Cortona and are considered “related parties” of the Company under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”).
As such, the Transaction will constitute a “related party transaction” under MI 61-101 because it is a transaction in which the Company will acquire securities from “related parties” for valuable consideration.
Accordingly, in accordance with MI 61-101, the completion of the Transaction is subject to, among other things, receipt by the Company of “majority of the minority” shareholder approval in accordance with MI 61-101.
Toscana shareholders as of the record date of July 20, 2018, will receive proxy voting materials (“Meeting Materials”) in advance of the Meeting (as defined herein) to vote by proxy or in person at a special meeting of Toscana shareholders (the “Meeting”) to be held August 22, 2018 at 10:00 a.m. (MDT) at the offices of Norton Rose Fulbright Canada LLP in Calgary, Alberta (3700, 400 – 3rdAvenue S.W.) to consider the Transaction.
The Meeting Materials will include the Circular that will contain, among other things, details concerning the Transaction, the reasons for and benefits of the Transaction, the risks associated with the Transaction, the requirements for the Transaction to become effective, voting at the Meeting, the Agreement, the fairness opinion and formal valuation and other related matters.
Shareholders are urged to carefully review the Circular and accompanying materials as they contain important information regarding the Transaction.
Closing of the Transaction remains subject to a number of customary conditions, including shareholder approval and certain regulatory approvals including approval or acceptance by the Toronto Stock Exchange (the “TSX”).
The Transaction is expected to close on or before August 31, 2018.
Source: Company Press Release