Crescent Point Energy Corp. is buying struggling Legacy Oil + Gas Inc. for about $563-million in stock, boosting its oil output in Saskatchewan, Manitoba and North Dakota during a time of depressed energy markets.
The acquisition follows a tumultuous period for Legacy that included the entrance of an activist investor.
Crescent Point will issue 19 million of its shares to Legacy stockholders and assume the company's $967-million in debt, bringing to the total value of the transaction to $1.5-billion. Legacy holders will get 0.095 of a Crescent Point share of each Legacy share.
The deal values Legacy shares at $2.85 apiece, or just 4.6-per-cent more than their 30-day weighted average price.
The acquisition shows how companies that entered the downturn with healthy finances and low operating costs are moving to pick up rivals hobbled by high debt levels and dwindling cash flow. Until now, many would-be sellers had hoped for an oil-price recovery to boost their value, but the rebound has been limited. Crescent Point had been widely expected to be one of the buyers because of its comparatively solid financial situation, thanks partly to extensive oil price and commodity hedges.
Crescent Point will get 22,000 barrels of oil equivalent a day, 15,000 of which are in the company's main operating areas, including southeastern Saskatchewan. It will also enter the Midale area of Saskatchewan. The deal will increase Crescent Point's daily output by 6.6 per cent to 162,500 barrels.
Last month, Legacy, saddled with high debt and declining cash flow, became the target of FrontFour Capital Group, led by activist investor Zachary George. He had demanded board seats and better corporate governance. His arrival on the scene followed a long slide in the stock price, which had prompted a margin call on its chief executive officer Trent Yanko's shareholdings that the company opted to backstop in a controversial move. Crescent Point is not taking on the loan guarantee, Mr. Yanko said in an interview.
A number of companies looked at purchasing either Legacy or parts of the company, he said. The so-called strategic review process began in February. "Ultimately, the decision to do the arrangement, business combination, with Crescent Point was deemed to be in the best interest of the shareholders."
FrontFour started making noise publicly in April. "We were well into the [review] process before they showed up and were evaluating – the board and special committee were evaluating – various different opportunities before they even showed up," Mr. Yanko said.
Crescent Point's CEO declined to comment because the financing deal is about to hit the market.
Crescent Point is also selling 21 million shares at $28.50 each for proceeds of $600-million in a bought deal led by Bank of Montreal and Bank of Nova Scotia. That is a discount to Tuesday's closing Toronto Stock Exchange price of $29.82.
It was not the only oil patch deal on Tuesday. Cequence Energy Ltd. sold a portion of its Alberta gas-gathering and processing assets to Kanata Energy Group Ltd. to reduce debt and fund a future project. Cequence sold 50 per cent of its Simonette natural gas facilities to the privately held company for $34-million. Further, Kanata will fund half of Cequence's $40-million project to expand the facilities.