Domestic investors never warmed to Harvest Energy Trust's combination of oil and gas fields in western Canada and refining in Come by Chance, Newfoundland.
However, the combination of upstream and downstream energy assets drew a premium price from Korea National Oil Corp., widely known as KNOC.
KNOC, long rumoured as a bidder for Canadian energy companies, stepped up late Wednesday with a $1.8-billion offer for Harvest. At $10 a unit, the proposed price comes at a hefty 47 per cent premium to where Harvest units traded over the past 30 days. KNOC will also shoulder Harvest's $2.3-biillion of debt.
Harvest's strategy of building an integrated energy trust, rather than focusing on oil and gas production, has its critics. Production shortfalls at the Newfoundland refinery have been one point of concern.
KNOC, however, says Harvest's assets are a "perfect fit" for the Korean company's North American growth strategy. Harvest has Alberta oil sands assets, which gives KNOC a toehold in this huge energy reserve, and may open the door to further acquistions by the Korean company.
TD Securities advised Harvest on the sale, the latest in a string of high-profile oil patch mandates for the investment dealer. Bank of America Merrill Lynch worked for KNOC. The energy trust suspended cash distributions as part of the takeover, which still requires approval from two thirds of unit holders.
KNOC has promised to pay Harvest a $100-million break fee if this transaction does not close, and has the right to match any rival bid. Harvest's directors have approved the transaction, and agreed not to solicit other offers.
Andrew Willis