NOT FOR DISTRIBUTION TO UNITED
STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES
CALGARY, Feb. 22, 2013 /CNW/ - Western Energy Services
Corp. ("Western") (TSX: WRG) and IROC Energy Services Corp.
("IROC") (TSX Venture: ISC) are pleased to announce that they have
entered into an arrangement agreement (the "Arrangement Agreement")
to combine Western's premier contract drilling fleet with IROC's
industry leading well servicing fleet and oilfield equipment rental
business (the "Transaction"). The combined company will
operate one of the newest fleets of equipment in each of its
respective service lines. The quality of the equipment,
coupled with their operational excellence, is evident in that both
companies currently yield one of the highest rig utilizations in
each of their respective industry segments.
Western will acquire all of the issued and
outstanding shares of IROC in exchange for a combination of cash
and Western common shares. Under the terms of the Transaction, IROC
shareholders will, for each share held, receive at their
election:
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(i) |
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$3.10 per share of IROC in cash (subject to an aggregate
maximum cash component amount of $62,834,400, plus any adjustment
pursuant to the exercise of IROC shareholder stock options prior to
closing (the "Option Adjustment") (collectively the "Maximum
Western Cash")); or |
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(ii) |
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0.4063 of a common share of Western per share of IROC (subject
to an aggregate maximum share consideration of 12,353,040 Western
Shares (the "Maximum Western Shares")); or |
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(iii) |
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$1.24 in cash and 0.2438 of a common share of Western per share
of IROC. |
In the event that the IROC shareholders elect to
receive, in aggregate, more than the Maximum Western Cash or the
Maximum Western Shares, a pro rata adjustment to the consideration
elected to be received will be made such that the aggregate amount
of cash to be paid to the IROC shareholders is capped at
$62,834,400 plus the Option
Adjustment and the aggregate share consideration is capped at
12,353,040 Western Shares.
The Western share consideration offered to IROC
is equivalent to $3.10 per IROC share
representing a 31% premium to IROC's closing price of $2.37 on February 21,
2013 and a 32% premium to IROC's 20-day volume weighted
average trading price of $2.35 per
share as at February 21, 2013. The
total transaction value is approximately $193.7 million, including the assumption of
approximately $36.6 million in IROC
debt, which includes IROC transaction costs and $5.0 million in estimated consideration for IROC
shareholder stock options and restricted share units. The
Transaction will be financed from Western's existing bank credit
facilities. Upon completion of the Transaction, on a fully
diluted basis, current Western shareholders will own approximately
83.8% and IROC shareholders will collectively own approximately
16.2% of the combined entity.
The Transaction is expected to be completed
prior to April 30, 2013 by way of a
Plan of Arrangement under the Canada Business Corporations Act
and is subject to normal stock exchange, court and regulatory
approvals, the approval by at least 66 2/3 percent of the
outstanding common shares of IROC, any applicable minority
shareholder approval requirements voted on at a special meeting of
shareholders of IROC and other conditions typical of a transaction
of this nature. Under the Arrangement Agreement IROC has agreed to
suspend future dividends pending closing of the Transaction.
The Transaction has received unanimous approval by the directors of
IROC (the "IROC Board") entitled to vote. Shareholders of IROC
holding approximately 17.1% of the outstanding IROC shares, have
entered into lock up agreements to vote in favour of the
Transaction.
STRATEGIC RATIONALE
A combination with IROC would solidify Western
as a leading oilfield services provider with:
- One of the largest deep capacity modern drilling rig fleets in
Canada;
- Critical mass in a high quality well servicing business in
Canada;
- Entry into the oilfield rental business with immediate size and
scale;
- Improved overall positioning with oil focused producers, thus
gaining a larger portion of oil focused capital expenditures;
- Reduced cash flow volatility by increasing the proportion of
production related revenue relative to its total revenue base;
- A more diverse fleet of well servicing rigs providing
opportunities in the deeper regions of the Western Canadian
Sedimentary Basin; and
- Immediate access to slant rig work targeting completions and
workovers in the oil sands and heavy oil regions of Alberta and Saskatchewan.
In addition, the Transaction should also provide
strategic corporate benefits to Western, including:
- Accretion on a cash flow and earnings per share basis, based on
current consensus estimates for both Western and IROC;
- Significant operational synergies over the next 12 months;
- Increased opportunities for consolidation in the well servicing
and oilfield rental business;
- The creation of a well servicing rig fleet with the size, scale
and fleet diversity to meet customer demands; and
- Western emerging with a fleet of well servicing rigs suited for
key resource plays.
Western continues to focus its efforts on three
core business lines encompassing contract drilling, well servicing
and rental services with an emphasis on businesses engaged in
unconventional resource development and on-going production
requirements. IROC's assets, client base, personnel, safety and
operational performance meet Western's acquisition criteria and
deliver the well servicing and oilfield rentals service lines
Western has been seeking.
Dale Tremblay,
Western's Chairman and CEO, said "This transaction represents
another milestone in Western's growth achievements. IROC has
assembled one of the highest quality well servicing rig fleets in
Canada with a strong operations
team that consistently achieves industry leading utilization
rates. We are excited about the operational synergies and
future growth opportunities that will come as a result of critical
mass in the well servicing business, coupled with an exceptional
oilfield rental platform."
Thomas Alford,
IROC's President and CEO, said "The transaction combines two
companies with best-in-class assets to create one of the top energy
service companies in the country. This transaction gives our
shareholders an immediate premium, increased liquidity and the
option to take shares in a proven growth company with exceptional
management."
SUMMARY OF ACQUISITION
IROC has assembled one of the premier well
servicing rig fleets in the industry. IROC's fleet consists of 51
well servicing rigs currently operating through its Eagle Well
Servicing division ("Eagle") and is expected to grow to 55 well
servicing rigs by the end of April
2013. All of the IROC well servicing rigs are ideally
suited for the continued demand for workover services as a result
of the number of producing oil wells. The average age of the IROC
fleet is approximately 4.5 years. IROC's well servicing fleet
at closing will consists of 22 singles, 26 doubles and 7 slant
rigs.
IROC also operates an oilfield rental division,
AERO Rental Services ("AERO"), which provides technologically
advanced oilfield equipment used in the drilling and completions
processes by oil and gas producers and oil and gas services
companies. AERO has focused on surface pressure control,
choke manifolds, power swivels, and tubular handling equipment for
production, re-entry and completion operations, as well as for
niche under-balanced and deep drilling applications. AERO has
grown its fleet of rental equipment to approximately $35 million in assets to satisfy demand
growth.
In addition, IROC operates 3 newly built coil
tubing units under its Helix Coil Services division
("Helix"). The fleet consists of two-truck mounted coil
tubing units that have been designed for working on medium depth
wells. These units have been designed for effective operation
and maneuverability on small or crowded locations. Helix's
deep-hole tractor trailer mounted conventional coil tubing unit is
capable of depths to 4,200 metres with 2 inch coil.
TRANSACTION METRICS
At a purchase price of $193.7 million, Western is acquiring IROC at the
following transaction metrics:
EV /
Rig (1)(2) |
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$2.65 million |
EV / Replacement Value of
Assets (1 )(2) |
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108% |
EV / 2013E
EBITDA(3) |
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5.07x |
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(1) |
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Based on 55 service rigs and accounts for $49 million in value
assigned to IROC's rental business, coil tubing business and
working capital |
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(2) |
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Western management internal estimate |
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(3) |
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Based on consensus analyst EBITDA estimates as per Bloomberg as
at February 20, 2013 |
PRO FORMA SUMMARY, TRANSACTION TERMS AND
CONDITIONS
Upon closing of the Transaction, Western expects
to have the following pro forma characteristics:
- Modern fleet of 50 drilling rigs of which 48 (or 96%) are "ELR"
rigs with a depth rating of over 3,000 meters with an average age
of 6 years;
- Modern fleet of 65 well servicing rigs with 32 singles, 26
doubles and 7 slant rigs with an average age of less than 4
years;
- Shares outstanding of 71.9 million (76.2 million fully
diluted);
- Pro forma fully diluted market capitalization of over
$600 million based on the
February 21, 2013 closing price of
Western shares; and
- Strong balance sheet with net debt leverage ratios in line with
the industry averages.
The members of the board of directors of Western
and the IROC Board members have both unanimously approved the
Transaction by those directors eligible to vote thereon. The IROC
Board members entitled to vote have unanimously determined that the
Transaction was in the best interests of shareholders, approved
entering into the Transaction and resolved to recommend that IROC
shareholders vote in favour of the Transaction.
IROC has agreed that it will not solicit or
initiate discussions regarding any other business combination or
sale of material assets. IROC has also granted Western the right to
match any superior proposals. The Transaction provides for a
reciprocal non-completion fee of $5.2
million payable in certain circumstances if the Transaction
is not completed.
Complete details of the terms of the Transaction
are set out in the Arrangement Agreement, which will be filed by
each of Western and IROC on SEDAR and will be available for viewing
under each of Western and IROC's profiles
at www.sedar.com.
FINANCIAL ADVISORS
Raymond James Ltd. is acting as exclusive
financial advisor to Western with respect to the Transaction.
AltaCorp Capital Inc. is acting as exclusive
financial advisor to IROC and has provided IROC with a verbal
opinion that, subject to its review of the final form of the
documents effecting the Transaction, the consideration to be
received by the IROC shareholders pursuant to the Transaction is
fair, from a financial point of view, to the IROC shareholders.
FORWARD-LOOKING STATEMENTS
This press release contains certain statements
or disclosures relating to Western or IROC that are based on the
expectations of Western or IROC as well as assumptions made by and
information currently available to Western or IROC which may
constitute forward-looking information under applicable securities
laws. All such statements and disclosures, other than those of
historical fact, which address activities, events, outcomes,
results or developments that Western or IROC anticipates or expects
may, or will occur in the future (in whole or in part) should be
considered forward-looking information. In some cases,
forward-looking information can be identified by terms such as
"forecast", "future", "may", "will", "expect", "anticipate",
"believe", "potential", "enable", "plan", "continue",
"contemplate", "pro-forma", or other comparable terminology.
In particular, this press release makes
reference to the Transaction and that: (a) the acquisition of IROC
is anticipated to provide for a number of specified strategic
benefits, (b) that the Transaction will be accretive based on
consensus estimates, (c) the anticipated growth in IROC's well
servicing rig fleet, (d) the anticipated closing of the
Transaction, as well as (e) the information under the headings
"Transaction Metrics" and "Pro Forma Summary, Transaction Terms and
Conditions". Readers are cautioned that there are a number of
conditions that must be met, including the approval of the
shareholders of IROC before the Transaction can be completed.
The forward looking information assumes the
completion of the Transaction and there is no assurance that all of
the conditions to the Transaction will be met and therefore there
is a risk that the Transaction will not be completed and if
completed the expected benefits may not materialize. As such, many
factors could cause the performance or achievement of Western or
IROC to be materially different from any future results,
performance or achievements that may be expressed or implied by
such forward-looking statements. Because of the risks,
uncertainties and assumptions contained herein, readers should not
place undue reliance on these forward-looking statements.
Additional information on these and other
factors that could affect Western or IROC's operations or financial
results are included in Western and IROC's respective reports on
file with Canadian securities regulatory authorities. Readers are
cautioned not to place undue reliance on this forward looking
information, which is given as of the date it is expressed herein
or otherwise and Western and IROC undertake no obligation to update
publicly or revise any forward looking information, whether as a
result of new information, future events or otherwise, unless
required to do so pursuant to applicable law.
Neither the TSXV nor its Regulation Services
Provider (as that term is defined in the policies of the TSXV)
accepts responsibility for the adequacy or accuracy of this
release.
SOURCE Western Energy Services Corp.