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Our roundup of Canadian small-caps of between $100-million and $2.5-billion in market capitalization making news and on the move today.
Calgary-based Total Energy Services Inc. (TOT-T) said it plans to make an offer to buy the Class A shares of Strad Energy Services Ltd. (SDY-T) at a price of $2.90 each, about an 18 per cent premium. Total said Strad shareholders will have an option to receive $2.90 cash or $1.35 cash plus 0.10 of a Total common share.
Total said it currently owns 3,709,700 Strad shares, representing about 9.95 per cent of Strad. Total said it hasn't commenced the offer yet, however, it believes "the combination of Strad and Total would give rise to meaningful synergies and efficiencies" of about $10-million over time.
This is not the first time Total has approached Strad about a business combinataion. That occurred in August, 2013, but Strad rejected Total's proposal in 2014. Total said it again approached Strad in August, but the company said ti was "not prepared to direct Strad management to engage with Total," Total said.
In a release, Strad cautioned shareholders "that no formal offer has yet been presented to Strad or its shareholders and there can be no certainty that an offer will be made or that a transaction will take place. Strad's Board of Directors recommends that shareholders take no action until shareholders have received further communications from Strad's Board of Directors."
Strad also said that based on its 20-day volume weighted average trading price, "Total Energy has significantly overstated the size of the premium it says it intends to offer."
Strad said it has appointed a special committee of its board comprised of John Hagg, Chair, Henry van der Sloot, Robert Grandfield, and Jack Nodwell "to review the terms of Total Energy's unsolicited takeover bid, if and when it is presented. The special committee will act in consultation with the company's financial and legal advisors."
Industrial Alliance Securities Inc. analyst Elias Foscolos said he has looked at the offer and it "represents a very low enterprise value to earnings before interest, taxes, depreciation and amortization of 6.3 times 2015 EBITDA, 3.9 times 2016 EBITDA and 0.7 times price-to-book ratio." As well, the offer doesn't include the cost synergies Total Energy expects. "If Total were to include half of those savings at a 4-times multiple to Strad holders, it would result in increasing the consideration to Strad holders by 55 cents," the analyst said.
And since the offer hasn't begun yet, the analyst said this is "simply a negotiating tactic."
As well, the $2.90 price is lower than the range of analyst price targets between $3.15 to $4. The analyst consensus 12-month price target for Strad is $3.59, according to Thomson Reuters.
"With a dividend yield of [about] 11 per cent, we believe that sophisticated investors can just sit and wait, pocketing the dividend and consider liquidating their shares in an upcycle," said Mr. Foscolos. He has a "buy" rating on Strad's stock, but he reduced his price target to $3.60 from $3.80.
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Pivot Technology Solutions, Inc. (PTG-X) said it has entered into a $200-million (U.S.) senior secured asset based revolving credit facility agreement with a group of lenders represented by JP Morgan Chase Bank.
The proceeds from the facility will fund general working capital and repay its outstanding balances of both its existing term loan and current revolving credit loan facilities with PNC.
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Valparaiso Energy Inc. (VPO.H-X) said its shareholders have approved the the consolidation of its common shares on a 4:1 basis, and this will be effective Sept. 23. Post-consolidation, the company will have 11,805,392 common shares outstanding.
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