Precision Drilling trumps Ensign bid for peer Trinidad

Precision Drilling trumps Ensign bid for peer Trinidad

Precision Drilling trumps Ensign bid for peer Trinidad

Precision said it already has identified 50 rigs in the combined fleet that it could sell.

Earlier this year, Akita Drilling Ltd. said it hoped to gain greater access to the US market by buying Calgary rival Xtreme Drilling a $209-million cash-and-shares deal.

The acquisition, which has an enterprise value of about C$4 billion, makes Precision the third-largest driller in the United States with more than 200 active rigs and 322 rigs in total, said the companies, both based in the Canadian province of Alberta. TD Securities lowered Precision Drilling from an "action list buy" rating to a "buy" rating and boosted their price objective for the company from C$7.00 to C$7.50 in a research note on Wednesday, September 5th. Upon completion of the transaction, existing holders of Trinidad shares will collectively own approximately 29 per cent of Precision.

The all-stock deal will see Precision issue 0.445 shares of common stock for each outstanding Trinidad share. But the Trinidad panned the offer, saying it was not in the "best interests" of Trinidad or its shareholders.

Excluding debt, the deal is valued at $551 million and is expected to close in late-2018. Ensign owns about 10% of Trinidad.

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"From a strategic perspective, Trinidad is a flawless fit with Precision". Precision Drilling shares were at $4.31, down 13 cents or about three per cent, and Ensign was off 40 cents or 6.3 per cent at $5.95.

He said Ensign could afford to increase its cash-offer for Trinidad, offer a nominal number of its own shares and pay the $20-million break fee.

"This combination of two high-quality drilling contractors creates the third-largest drilling contractor in the robust USA market and provides a significant global growth platform", noted Trinidad CEO Brent Conway in a news release.

In Canada, Precision would have about 30 per cent of the contract drilling market.

He added: "Over the long-term, the additional scale will further strengthen Precision's operating leverage and positions the company to service our customers' continued transition to high performance drilling services with high spec AC rigs".

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Beginning in 2019, the operator also expects to begin to realize more than C$30 million in annual synergies through corporate efficiencies and facility consolidations. Precision will leverage its increased scale and realize long-term incremental operating efficiencies through its recently upgraded IT infrastructure, technical support centres in Nisku and Houston, and its supply chain management and manufacturing capabilities. Precision's operating experience, infrastructure and scale in Saudi Arabia and Kuwait will support successful project execution.

Trinidad's shares were ahead 11 cents or about six per cent at $1.95 at noon on the Toronto Stock Exchange.

This week, Husky Energy Inc. made a hostile $6.4-billion bid for oilsands-focused rival MEG Energy Corp. marking the third hostile takeover bid in the domestic energy sector this year after Ensign's offer for Trinidad and privately held Velvet Energy Ltd.'s takeover of Iron Bridge Resources.

"This transaction creates exceptional value for both Trinidad and Precision shareholders".

Under terms of the agreement, Trinidad may not solicit or initiate discussions regarding any other business combination or asset sale.

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One of Trinidad's directors is to be appointed to the Precision board, and another Trinidad director will be nominated for election to the board. Precision has the right to match any superior proposals within a five day period. It expects about 215 rigs would be actively working.

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