U.S.-based private equity firm First Reserve Corp. has made a bid for Vancouver's CHC Helicopter Corp. that values the global helicopter operator at about $3.7-billion.
The deal would be the biggest-ever buyout in the oil field services industry, the two companies said Friday.
"This transaction will mark the beginning of an exciting new phase in CHC's history," CHC president and chief executive Sylvain Allard said in a conference call.
"I am delighted that First Reserve was able to recognize the value CHC has created over the years," Mr. Allard said, adding the deal will help the company "strengthen our position as the largest helicopter service company in the world."
"First Reserve is an investment company with deep knowledge of the energy industry and views CHC as a great investment platform."
First Reserve is offering $32.68 a share for each of CHC's class A and class B shares, for a total cash component of $1.5-billion. It would also assume about $800-million in debt as well as the liability associated with off-balance sheet aircraft leases, which the company said amounts to about $1.4-billion or $1.5-billion.
The offer was a 49 per cent premium to CHC's closing price on the Toronto Stock Exchange Thursday of $21.88.
First Reserve managing director Mark McComiskey said while the value of the deal may seem high to some, his company believes the business is worth it.
"I think the company has had some hiccups recently that has forced the stock down...we see an enormous amount of upside in CHC's business," Mr. McComiskey said in an interview, citing the rising price of oil and the company's strong position in its business.
"CHC is the by far the best of the companies in the helicopter services sector because it is the largest and it's a global company. It's got a significant presence in every major growth basin for offshore oil and gas production in the world."
CHC shares were up sharply in midday trading after a halt earlier in the day, gaining $8.78 or 40 per cent to $30.66. The stock has traded between $20.01 and $29.98 in the past 52 weeks.
CHC is the world's biggest provider of helicopter transportation to oil companies, with its aircraft used to fly people and equipment to locations where oil and gas are drilled, such as offshore oil rigs and remote oil fields.
As part of the deal, CHC's headquarters would remain in Vancouver and Mr. Allard will keep the CEO title, a job he has held since November 2004. Mr. Allard started with CHC as a helicopter pilot in Eastern Canada in 1982 and has held several key positions in the company, including chief pilot and president of various subsidiaries.
Mr. McComiskey of First Reserve also said the company expects it will add jobs after the takeover, as the company expands.
"This is a growth investment for us," Mr. McComiskey said.
In 2006, CHC was in talks with private equity firms about a potential takeover that valued the company at about $1.3-billion. The talks later collapsed.
On Friday, Allard said it is not actively searching for other bidders. If another bidder does come forward, the deal gives First Reserve five days to match it. If CHC breaks the deal, there would be a fee of $38.5-million. If First Reserve pulls out of the agreement, there is a "reverse break fee" of $61.4-million.
Mike Mazar, an analyst with BMO Capital Markets, said he doubts another bidder will come in, given the already high price First Reserve is offering.
"It's an interesting deal, and a very expensive deal," Mr. Mazar said.
"I get it, there are a lot of positives in this business now and not a lot of competitors."
The deal requires approval of two-thirds of CHC's shareholders, with a majority in each class. It also requires approval by European aviation regulatory authorities, as well as the Canada Transportation Agency, concerning licensing arrangements and a nod from Investment Canada.
The company is hoping to close the deal by June.
The estate of CHC founder Craig Dobbin, which holds 14 per cent of the class A shares, 95 per cent of the class B stock and all of the ordinary shares has agreed to vote in favour of the deal.
Mr. Dobbin died in October 2006 at age 71, just one day after announcing he was taking a leave of absence from his position as executive chairman of the company for health reasons.
His son, Mark Dobbin, is now chairman. Mark Dobbin will no longer be associated with the company when the sale is complete, the companies said Friday.
Craig Dobbin, a native of Newfoundland who was appointed to the Order of Canada in 1992, moved CHC's head office to Vancouver from St. John's in 2004.
He founded Sealand Helicopters in 1977, and in 1987 created Canadian Holding Company, or CHC, while heading a group that purchased Okanagan Helicopters and Toronto Helicopters, and merged them with Sealand.
Over the last dozen years, CHC has purchased British International Helicopters in 1994, Helicopter Services Group of Norway in 1999 and Schreiner Aviation Group in 2004.