Handout photo from Savanna Energy Services
Debt-saddled Savanna Energy Services Corp. has finalized financing to strengthen its balance sheet, and is now turning its focus to a hostile takeover bid from a rival firm.
Like others in the sector, the mid-sized Canadian energy-services company has struggled during the two-year oil price collapse. It announced this week that it had formalized an agreement with Alberta's public-sector investment manager – Alberta Investment Management Corp. or AIMCo – for $200-million in debt financing, and a private placement of almost $19-million of equity.
AIMCo chief executive officer Kevin Uebelein said the investment will give Savanna "the flexibility to weather this current market downturn and allow them to position for future growth."
In an indication that merger and acquisitions action could be heating up for the oil-field service sector as crude prices rise, Savanna is also grappling with an unsolicited, all-stock takeover bid by Total Energy Services Inc.
Savanna chief executive officer Chris Strong said a special committee of independent directors will issue a director's circular in response to Total Energy's bid by Dec. 23.The Total Energy offer currently values Savanna shares at about $1.83 per share. Savanna's shares closed at $1.81 on Wednesday.
"We believe that with industry conditions appearing to be improving, the timing of the refinancing is particularly welcome as it allows for exclusive management focus on improving operating and financial results," TD Securities Inc. analyst Scott Treadwell said in a note.
"Although we believe that the industry consolidation rationale behind the bid for Savanna remains sound, improving industry conditions in the short term will likely force the bid higher, although without a much more meaningful recovery, upside beyond our target price appears to be limited in the short-term."
Savanna has so far appeared cool to the takeover bid. Analysts note the bid may not fully reflect Savanna's value in a firmer oil-price environment.
Savanna, which also announced it had closed an additional $21.68-million bought deal Tuesday, operates a fleet of more than 100 drilling rigs in Canada, the United States and Australia, as well as service rigs and rental equipment. With the new financing, the company no longer faces the the specter of a $170-million debt maturing in May, 2018. Analysts have praised the Calgary-based company's recent cost-cutting measures.
AltaCorp Capital Inc. analyst Aaron MacNeil said Total Energy's plan would be a win for shareholders of both companies. AIMCo wouldn't comment on the deal this week. But earlier this month – before Total Energy sweetened its offer – Savanna said AIMCo did not intend to consent to a change of control.
Mr. MacNeil noted that U.S. driller Patterson-UTI Energy Inc.'s announcement this week that it would buy the much smaller Seventy Seven Energy Inc. could be part of the oil-field service merger trend.
"There should be a trend towards consolidation because you get those efficiencies of scale."
For his part, Total Energy chief executive officer Daniel Halyk said major investors backed his plan even before he made it public. He said his company's balance sheet is stronger, and the merger will result in $10-million a year in cost savings.
"I look forward to the opportunity to meet with AIMCo and tell them why this deal would be good for them," Mr. Halyk said Wednesday.
"Now we just have to let the clock tick," he said, referring to the securities rule enacted this year that hostile bidders keep offers open for a minimum of 105 days.
"We make sure the message is out there, and close this deal in March, and get on to integrating and making a better Alberta company that's a global player."
Mr. Halyk is no stranger to difficult deals. Total Energy says it has completed 25 acquisitions in the last two decades. But in September, 2015, Total was forced to drop its hostile takeover bid for Strad Energy Services Ltd. after Strad adopted a "poison pill."