After twists and turns, Surge nears Longview deal

Share

It's been a long road to Surge Energy Inc.'s $244-million takeover bid for Longview Oil Corp., involving a bought deal of shares that failed to sell out, the acquisition of a sizable Longview stake in an agreement that raised eyebrows, and the participation of several investment banks.

Now, Surge is poised to acquire the four-fifths of Longview it does not already own in a friendly share exchange, adding light- and medium-gravity oil prospects in Saskatchewan and Alberta and adding to a major resurgence in merger activity in the Canadian oil patch.

Surge, led by CEO Paul Colborne, is offering 0.975 of one of its shares for each Longview share, which pegs Longview at $5.99 a share based on Monday's close. That's a 35-per-cent premium to the closing price on Feb. 7, the day before Longview first disclosed it had received a non-binding takeover proposal.

Averaging out the bid and the $4.45-a-share Surge paid for the 19.8 per cent it previously bought, and tacking on Longview's debt of $155-million, the acquisition rings in at $429-million, according to Surge.

Longview was up 5.6 per cent at $5.80 on the Toronto Stock Exchange mid-afternoon on Tuesday. Surge was off 1.8 per cent at $6.03.

The story goes back to early February, when Advantage Oil & Gas Ltd. sold its 45-per-cent interest in Longview in a bought deal led by RBC Dominion Securities and FirstEnergy Capital Corp.

That offering was "hung," or failed to sell out, leaving the dealers with a sizable remaining position. According to Surge, it was approached by the underwriters to acquire the stake, which it did, essentially putting Longview in play.

According to investment banking sources, the saga raised questions among some oil patch executives about such risks to other companies when a secondary offering fails to clear in a bought deal.

If the takeover deal closes, Surge will boost its annual dividend by 11 per cent to 60 cents a share, it said. The company expects to be producing 21,000 barrels of oil equivalent a day by the end of the year, with oil accounting for 84 per cent of the mix.

In a research report, RBC analyst Mark Friesen said a higher offer for Longview is possible, but unlikely, given Surge's already-large position in the company.

Macquarie Capital Markets Canada Ltd. is Surge's financial adviser and Scotiabank, GMP Securities L.P. and National Bank Financial are strategic advisers. BMO Nesbitt Burns is advising Longview in the deal.

Follow Jeff Jones on Twitter at @The_Jeff_Jones.