- Velvet Energy’s offer of $0.75 in cash per common share represents a significant 58% premium to the $0.475 closing price of Iron Bridge common shares on May 11, 2018, the last trading day prior to the submission of Velvet’s offer letter to the Iron Bridge board of directors.
- Velvet’s all-cash offer represents full and fair value and certainty, which is financially superior to the high-risk “go it alone” alternative.
- Velvet’s offer is not subject to due diligence and has only limited conditions that are customary for a takeover offer of this kind.
- Iron Bridge common shares have underperformed, even in a strengthening commodity price environment, reflecting the market’s concerns with Iron Bridge’s business plan and financing ability.
- Iron Bridge shareholders can tender their shares now by contacting Kingsdale Advisors at 1-866-879-7650 or by e-mail at email@example.com.
CALGARY, Alberta, June 20, 2018 (GLOBE NEWSWIRE) — Velvet Energy Ltd. (“Velvet” or “We” or “Us”) today commented on the recently published Directors’ Circular (the “Circular”) issued by Iron Bridge Resources Inc. (TSX:IBR) (“Iron Bridge” or the “Company”) regarding Velvet’s all-cash offer (the “Offer”).
“It is clear from our conversations with supportive shareholders that they believe the Velvet Offer is in their best interests and superior to the uncertainty of a standalone plan,” said Ken Woolner, President and Chief Executive Officer of Velvet Energy. “There is nothing in the Iron Bridge Directors’ Circular that provides a realistic strategic direction for Iron Bridge or that detracts from the strength of our $0.75 per share Offer, which represents a significant 58% all-cash premium to Iron Bridge’s pre-Offer common share price of $0.475, immediate liquidity, and certainty of value against the backdrop of a very uncertain market and a risky Iron Bridge standalone plan.”
Velvet urges Iron Bridge shareholders to consider the following points as they review the Circular:
VELVET’S OFFER REPRESENTS A SIGNIFICANT 58% CASH PREMIUM TO MARKET PRICE
- Velvet’s 58% premium is fair to Iron Bridge shareholders especially considering the current merger and acquisition environment in the oil and gas sector in Canada, where the two most recent transactions – Baytex Energy/Raging River Exploration and Vermilion Resources /Spartan Energy – saw respective premiums of only 10% and 5%. More broadly, across all takeover transactions in all sectors in Canada since 2000, the median premium was approximately 26%.
- Iron Bridge’s attempt to discount the premium Velvet is offering and claim credit for stock appreciation fails to account for the fact that Iron Bridge had our $0.75 offer letter in hand for nearly a week prior to the Iron Bridge dissemination of a press release regarding certain well results. During that interim period the stock traded at more than three times the year-to-date average daily volume at higher prices. For this reason, the closing common share price on the TSX on May 11, 2018, the last trading day prior to the submission of Velvet’s offer letter to the Iron Bridge board of directors, is the most accurate reference point when evaluating the size of the effective premium. The effective premium is significantly higher when compared to Iron Bridges’ standalone prospects and unattractive financing options – highly dilutive equity or very expensive and non-traditional debt.
- At this time, Velvet’s Offer is the highest price and valuation available for Iron Bridge common shares. If Velvet’s Offer was not made or is not accepted, Iron Bridge common shares would be trading materially below $0.75, given the market understands that any junior oil and gas standalone plan will require some form of financing transaction, which has substantial execution risk for a company such as Iron Bridge.
MARKET VALIDATES VELVET’S VALUATION
- Research analysts and public markets support $0.75 per share as a fair valuation for Iron Bridge.
— The volume-weighted average price of Iron Bridge’s common shares since the launch of our Offer on May 22, 2018 on all Canadian exchanges is $0.75, demonstrating that the market agrees with the valuation of Velvet’s Offer.
— In addition, the median one-year forward target price of the equity research analysts that cover Iron Bridge is also $0.75, further validating the market’s support of the Offer. Notably, these target prices were established subsequent to both the Velvet Offer and the disclosure of new well results from Iron Bridge.
REFUTING IRON BRIDGE ASSERTIONS
- The underperformance of Iron Bridge’s share price is the result of its financial constraints and poor operating results, despite the significant increase in the price of crude oil.
- Iron Bridge makes an unsubstantiated assertion that there are 500 viable drilling locations on the Company’s lands. Even if this assertion was true, extracting this resource would require over $3.5 billion of capital, unattainable by a company with a pre-Offer market capitalization of approximately $74 million. To put potential dilution into perspective, if our Offer was withdrawn and Iron Bridge’s common shares return to the pre-Offer price of $0.475, the Company would have to issue over 14 million common shares to deliver one additional producing well at the estimated cost of $7.1 million– equivalent to 9.5% dilution per well.
- Iron Bridge’s future prospects are weighed down by poor cash flow and negative working capital. Following the closing of its Waskahigan asset sale on October 17, 2017, Iron Bridge estimated corporate working capital of $45 million. Based on Iron Bridge’s most recent quarterly disclosure, that surplus swung to a deficit of approximately $2.2 million at March 31, 2018 with marginal corporate cash flow. The numbers don’t lie – any standalone plan for Iron Bridge will require significant financing, the availability and cost of which is highly uncertain and risky for a junior oil and gas company such as Iron Bridge.
- The synergies Iron Bridge references in its Circular are only available to Iron Bridge in a combination with Velvet and this value is fully reflected in our 58% premium Offer. Velvet believes that a financially superior offer for Iron Bridge is highly unlikely.
CERTAINTY OF VALUE vs. UNCERTAIN FUTURE
- Iron Bridge speaks of having financing “term sheets in-hand”, yet the Fairness Opinion by Iron Bridge’s financial advisor, which lists all documents they reviewed, mentions only “An indicative debt financing proposal received by Iron Bridge in May 2018”. If additional financing was indeed readily available, one would think that given the large capital spending requirements facing the Company, management would proactively execute a financing to avoid allowing available capital to decline to the current nominal unused capacity on its $5 million bank line.
- Any debt financing, including debt convertible into equity, if achievable, would be costly given the risk profile of Iron Bridge and would represent a significant transfer of economic value (and potentially control) from shareholders to creditors, while debt servicing costs would seriously erode cash flow and margins.
- Iron Bridge has yet to articulate a business plan inclusive of a tangible anti-dilutive and/or anti-debt burdening financing strategy. Moreover, its inability to even provide guidance for the second half of 2018 shows a lack of confidence in execution and a lack of transparency about the dispersion of results from its drilling program. Simply put, Iron Bridge is asking shareholders to blindly risk their investment.
- Velvet’s all-cash Offer provides immediate returns and certainty of value; it also eliminates the risk of value transfer to other stakeholders at the expense of you – the independent shareholders.
NOTION OF SHAREHOLDER SUPPORT INCONSISTENT WITH AGM VOTING RESULTS
- According to an Iron Bridge press release dated June 5, 2018, only 24% of the Company’s outstanding common shares were voted on the resolution to re-elect the current board of directors at the Company’s annual general meeting (“AGM”). Having only 24% of shares voted for the directors of a company at an AGM indicates that shareholders are at best not enthusiastic about the current direction of the company.
- CEO Robert Colcleugh had the largest number of withheld votes at 27.55%. A large number of shareholders seemingly don’t agree with the current direction of the Company and are holding specific individuals accountable, namely the CEO, who is responsible for executing the strategy.
- This year the median withheld vote for a CEO was ~1% for the Montney peer group, as defined in our circular, and less than 1% for the S&P/TSX Energy Sub Index. Iron Bridge’s CEO, at ~28% withheld, is the highest of any CEO in either group.
- This vote apathy is inconsistent with Iron Bridge’s claims of support, and suggestions that the Offer cannot be successful are unfounded. Shareholders are reminded that the statutory minimum tender condition is 50%, after which point the board of directors and management of Iron Bridge could be replaced. We are confident in shareholders’ ability to judge the value of our Offer for themselves.
A FINANCIALLY SUPERIOR ALTERNATIVE TO THE STATUS QUO
Velvet is offering Iron Bridge shareholders a fully-valued all-cash offer that gives shareholders immediate liquidity against the backdrop of volatile markets and a very uncertain ability for Iron Bridge to execute on its business plan.
Under the terms of the Offer, Iron Bridge shareholders will receive $0.75 in cash for each common share of Iron Bridge held, representing an immediate 58% premium to the closing price of the Iron Bridge common shares on the TSX on May 11, 2018, the last trading day prior to the submission of Velvet’s offer letter to the Iron Bridge board of directors.
“Shareholders no longer need to endure poor operating results, a declining share price, and a leadership team that has no real plan to create value for shareholders. Iron Bridge’s AGM voting results suggest shareholders are keenly interested in a different choice than the status quo. We’re offering shareholders an opportunity to realize $0.75 cash for their investment in Iron Bridge common shares,” Mr. Woolner added.
Velvet has the financial resources available to complete the Offer, and reminds Iron Bridge shareholders that the Offer is not subject to any due diligence condition. Velvet’s ability to complete the Offer and deliver certainty of value to Iron Bridge shareholders is reinforced by the very limited number of conditions to closing, which are customary for a transaction of this nature.
Velvet also reiterates to Iron Bridge shareholders, and has repeatedly made clear, that the Offer was made based on publicly-available information about Iron Bridge, and Velvet’s expertise in Iron Bridge’s areas of operations. Velvet categorically rejects any allegation that the Offer was informed by improperly-obtained confidential information, and views such allegations as a distraction from the significant financial merits reflected in the Offer.
TENDER YOUR SHARES TODAY
Consider the benefits, and take the simple steps needed to tender your Iron Bridge common shares to the Offer now. The Offer expires at 5:00 p.m. (Toronto time) on September 12, 2018. If you have any questions or require assistance, please contact Kingsdale Advisors, our Depositary and Information Agent, by telephone toll-free at 1-866-879-7650 with North America and at 1-416-867-2272 outside of North America or by e-mail at firstname.lastname@example.org.
Visit velvetenergy.ca/ironbridgeoffer for more information and updates.
Velvet has retained BMO Capital Markets as its exclusive financial advisor and Bennett Jones LLP as its legal counsel. Kingsdale Advisors is acting as strategic communications advisor and its Information Agent and Depositary.
For additional information, including assistance in depositing Iron Bridge shares to the Offer, Iron Bridge shareholders should contact Kingsdale, toll-free in North America at 1-866-879-7650 or call collect outside North America at 1-416-867-2272 or by email at email@example.com.
Velvet Energy Ltd. is a privately-held, full-cycle exploration and production company. Focused in the liquids-rich gas and light oil window of the Deep Basin of Alberta, the Company executes an organic growth business plan, including early land capture, technical evaluation, exploration and development of internally generated prospects. Headquartered in Calgary, Velvet has current production of approximately 24,000 boe per day and a focused land position consisting of over one million net undeveloped acres spanning from its core liquids-rich Ellerslie development in the greater Edson area to early phase Montney light oil exploration at Gold Creek.