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Press release from CNW Group

Hyduke Responds to Unsolicited Bid

Tuesday, October 09, 2012

Hyduke Responds to Unsolicited Bid09:20 EDT Tuesday, October 09, 2012NISKU, AB, Oct. 9, 2012 /CNW/ - October 9, 2012 - Hyduke Energy Services Inc. ("Hyduke") (TSX:HYD) reports that after the close of business on Friday, Hyduke received documents from Do All Industries Ltd. ("DoAll") notifying Hyduke of DoAll's unsolicited tender offer to acquire all of the outstanding common shares of Hyduke for cash consideration of $0.83 per common share (the "Offer").Hyduke's Board of Directors ("the Board") has re-established a Special Committee of the Board ("Special Committee") to review this Offer.  The Board strongly urges Hyduke shareholders not to deposit any shares to the Offer and not to take any action with respect to the Offer until the Board has completed its full review and consideration of the Offer.  Hyduke's Board will issue a Directors' Circular concerning the Offer within the next fifteen calendar days.  The Directors' Circular will contain important information including the formal recommendation of the Board and the detailed reasons supporting the recommendation.  Hyduke has re-engaged Sequeira Partners Inc. ("Sequeira") as its financial advisor.  Sequeira are experienced investment bankers focused primarily on the mid-market energy services industry.While the Board's review of this unsolicited Offer is not complete, it is clear that the purchase price offered is significantly undervaluing Hyduke's business.  DoAll is offering to buy Hyduke for approximately $20 million.  (based on $0.83 per share and 24,162,364 common shares outstanding)  Compared to Hyduke's most recently released financial statements (June 30, 2012), the Offer of $20 million is $13 million less than the $33 million shareholder equity in Hyduke; this represents close to a 40% discount to book value.  Factoring in the fair market value of real estate in excess of carrying value, this discount is even higher.  Additionally, Hyduke is in an excellent liquidity position with a current asset surplus of $29.2 million (ie. current assets of $59.5 million compared to current liabilities of only $30.3 million).  Of the current asset balance at June 30, 2012, $30 million represents work in process.  A number of large projects associated with this work in process amount will be completed in the second half of 2012, further enhancing Hyduke liquidity.  When compared against book values of shareholder equity and company liquidity, the Offer materially undervalues Hyduke.The Board is very disappointed with this unsolicited Offer.  As shareholders are aware, a plan of arrangement whereby DoAll would pay cash consideration of $1.37 per common share recently was terminated by DoAll.  It is Hyduke's position that Do All was not in a position to terminate the Arrangement Agreement.   Hyduke is preparing a response to the September 27, 2012 termination letter issued by Do All and is otherwise considering its rights and course of action including Hyduke's entitlement to the $1 million Non-Completion Fee provided for in the Arrangement Agreement.  In addition, DoAll has represented in the Offer reasons for terminating and reasons for offering a significantly lower price than originally offered.  The Board is not in agreement with these reasons.Hyduke cooperated fully with DoAll during the due diligence and attempted closing.DoAll represented to Hyduke that they had financing in place sufficient to close at $1.37 per share.  While it was represented to Hyduke that it was a cash offer with no financing conditions, a significant amount of assistance was provided to DoAll in connection with financing the original offer.Hyduke provided all requested financial information on a timely basis to two different financial institutions during the process.  Hyduke acted reasonably and conducted themselves in good faith at all times throughout the process.  Hyduke notes in the Offer, that DoAll has a recently obtained commitment letter for a bridge facility that will enable DoAll to close on this lower $0.83 offer.Hyduke notes that the provider of this commitment, as disclosed by DoAll, is not either one of the two financial institutions Hyduke dealt with during the recent due diligence and closing process.DoAll refers to Hyduke not being able to satisfy conditions to closing.  The Board strongly disagrees with this representation.  In all material instances, Hyduke had satisfied closing conditions, had accommodated DoAll requests for extending the closing, and were simply waiting for DoAll to close.DoAll refers to contingencies such as executive management termination payments and rig manufacturing penalties as support for dropping their offer from $1.37 to $0.83.  Shareholders should be aware that these potential costs were accounted for in the original price negotiations resulting in a $1.37 per share offer.Further detail on these and other matters will be provided in the Directors' Circular.Hyduke's Board will be looking at a number of strategic alternatives.  The Special Committee met yesterday with Sequiera and has formulated a preliminary plan.  While Hyduke was prevented from soliciting superior offers under the original arrangement agreement, Hyduke is not constrained under this unsolicited bid.  Accordingly, Hyduke will be actively soliciting strategic investors and partners.  Additionally, Hyduke will be looking at other ways to enhance shareholder value and provide shareholders with a viable alternative to this Offer.Once again, Hyduke strongly urges shareholders to not deposit any shares to the Offer until further information and a recommendation from the Board of Directors of the Company is circulated to all shareholders.About HydukeHyduke is an integrated oilfield services company with over thirty years experience in the manufacture, repair and distribution of oilfield equipment and supplies in Canada and worldwide.  Hyduke specializes in providing customized, integrated solutions to the drilling and well service industries including:Turn-Key Equipment - drilling rig and service rig packages including in-house design, engineering and drafting, major component procurement and overall project management;Life Cycle Management - inspection, certification, service, repair and supply services throughout the operating life of the drilling or well service rig; andSingle Source Supply - providing new capital equipment, repair and maintenance on existing capital equipment and supply of operating consumables.Hyduke is headquartered in Nisku, Alberta and has facilities in Edmonton, Calgary, Nisku, Leduc, Red Deer and Lloydminster, Alberta and Houston, Texas, USA.Hyduke operates in three operating segments.  The Drilling Equipment segment includes manufacture and repair of land based drilling rigs and drilling rig structures, supply and repair of drilling rig equipment, procurement and distribution of drilling supplies, supply and service of pneumatic controls, engineering and design of drilling rigs and inspection and certification of drilling rig equipment.  The Well Service Equipment segment includes manufacture and repair of well service rigs, mobile and skid mounted pump units and other well service equipment, procurement and distribution of well servicing supplies, supply and service of pneumatic controls, engineering and design of well service rigs and inspection and certification of well service equipment.  The Other Oilfield Services segment includes manufacture and distribution of cased hole and overburden drill bits and drilling systems, custom and production machining services, distribution and repair of truck-mounted equipment including cranes, winches and dump boxes and industrial sandblasting, painting and collision repair._________________________________________________________________________________________________________________________________________The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this News Release.Forward Looking StatementsThis report contains certain forward-looking statements under the heading "Outlook" and elsewhere concerning future events or the Company's operations, anticipated financial performance, business prospects and strategies of Hyduke.  Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "expect", "plan", "intend" or similar words suggesting future outcomes or outlooks on, without limitation, estimates of business activity, supply and demand for the Company's products, the estimated amounts and timing of capital expenditures, anticipated future debt levels, or other expectations, beliefs, plans, objectives, assumptions or statements about future events or performance.  Readers are cautioned not to place undue reliance on forward-looking information. By its nature, forward-looking information involves numerous assumptions, inherent risks and uncertainties both general and specific that may cause actual future results to differ materially from those contemplated and contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur.  These factors may affect anticipated earnings or assets and include, but are not limited to: industry activity levels, market liquidity, customer credit risk, competition, oil and gas prices, product liability, fixed price contracts, development of new products, uninsured and underinsured losses, access to additional financing, source of supply of raw material and third party components, availability of key personnel, agreements and contracts, government regulations, foreign exchange exposure, interest rate risk, international scope of operations, environmental health and safety regulations and Hyduke's anticipation of and success in managing the risks implied by the foregoing.  The Company cautions that the foregoing list of important factors is not exhaustive.  The Company believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon.  The forward-looking statements in this report speak only as of the date of this report.  Hyduke undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities legislation.SOURCE: Hyduke Energy Services Inc.For further information: Myron Yurko  Chair of the Board  (780) 955-0355  Gordon R. McCormack President and Chief Executive Officer  (780) 955-0355