Birchcliff Energy tumbles in face of bought deal

Even a guaranteed investment from Seymour Schulich couldn't save Birchcliff Energy.

On the same day that the natural gas producer terminated its six-month sale process because it couldn't find a suitable buyer, Birchcliff launched a $72-million bought deal led by GMP Securities, with plans to use the proceeds to pay down its hefty debt load.

Alongside this offering, Mr. Schulich, Birchcliff's biggest shareholder, promised to buy $38-million of shares in a private placement, hoping to demonstrate that he still had confidence in the company.

But even with a 13-per-cent discount on the common shares, the market wasn't receptive to the offering. By end of day Thursday, the stock traded around $7 per share, down 21 per cent from the open, and lower than the $7.65 price for the common share deal. (Mr. Schulich's private placement was also priced at this level.)

To give you a sense of where Birchcliff's shares have traded over the past few months, the stock sat at $10.18 the day before the corporate sale process was announced in October, then jumped to as high as $15.40 per share. Since February, however, the stock has cratered, and the losses continued Thursday.

Just two weeks ago, Birchcliff said that its sale process was "continuing," but reminded investors that "there can be no assurance that the ongoing negotiations will result in a successful transaction." In its release Thursday, the firm announced that it ultimately turned down two non-binding offers, but Mr. Schulich made it very clear that he viewed both as low ball bids, and that he didn't want to sell the company for cheap.

"I believe that a sale of the corporation at the bottom of the commodity price cycle will not achieve an appropriate value for Birchcliff's shareholders," he said.

Like many other natural gas players, Birchcliff has been hammered by the falling commodity price, which now sits at $2.17 (U.S.) per 1000 cubic feet. On top of that, Birchcliff is plagued by a debt burden it can't seem to shake.