Iron Bridge Resources Inc. has agreed to a sweetened takeover bid from rival oil producer Velvet Energy Ltd. after more than three months of seeking a white knight in a sagging energy market.
Privately-held Velvet raised its cash offer by 13 per cent to $131-million, enough to turn its hostile bid into a friendly one. It is now offering 84.5 cents a share, up from the previous offer of 75 cents a share.
The deal has the support of Iron Bridge’s board, as well as 35 per cent of shareholders, including major investors Maple Rock Capital Partners and Bison Interests LLC, the companies said.
Velvet launched its unsolicited offer in late May, saying it was uniquely positioned to acquire Iron Bridge’s Gold Creek properties, a set of oil-rich Montney-formation assets in Alberta that were intertwined with its own in the region.
Iron Bridge rejected the bid, saying that Velvet was trying to acquire its assets on the cheap before production ramped up to what it saw as potentially high rates.
However, since the initial announcement, the S&P/TSX energy group has fallen 8 per cent, as investors have turned their attention to other sectors amid constant delays in expanding export markets that would offer better prices for Canada’s oil and gas. Other takeovers in the industry have been met with less-than-enthusiastic market response. The slide intensified following the Federal Court of Appeal’s decision overturning the approval of the Trans Mountain pipeline expansion project.
Iron Bridge, meanwhile, reported disappointing results from drilling operations in August, and its debt position was on the rise due to the high cost of drilling in the region.
Ken Woolner, Velvet’s chief executive officer, said the higher bid allowed the company to remove the risk that the battle could drag on in the absence of support from Iron Bridge’s major institutional investors.
“We were confident that we set the price such that we were the only buyer that would make sense. We were the natural geographical buyer,” Mr. Woolner said. “We needed for them to play out their process because they had a different view. They had a view that there would be tons of interest at higher prices … and it’s a tough world in Canadian energy right now.”
Velvet is owned by Warburg Pincus LLC, Trilantic Capital Partners, 1901 Partners Management LP and Canada Pension Plan Investment Board.
Iron Bridge had been weighing arrangements with other companies as well as proposals to finance its operations as a stand-alone company, CEO Rob Colcleugh said.
“I think it’s the best outcome for shareholders given the circumstances,” Mr. Colcleugh said. Indeed, equity markets have been almost closed to smaller energy companies this year, limiting rivals’ ability to top a cash offer.
Cormark Securities Inc. was Iron Bridge’s financial adviser. Velvet, retained Bank of Montreal.