Completion of the Transaction remains subject to a number of conditions and approvals, including, but not limited to the approval of the Toronto Stock Exchange, shareholders of both Tenaz and SDX, and the applicable UK court. The addition of the Cash Alternative is not expected to create material delay to the timing of the shareholder votes or closing of the Transaction. It is expected that Tenaz and SDX will hold shareholder meetings to approve the Transaction in July 2022. Based on progress to date regarding required regulatory clearances, the parties are currently targeting closing of the Transaction between August and October 2022. Tenaz and SDX have also received UK regulatory approval to amend the longstop date for the Transaction to December 31, 2022. The previous longstop date was May 24, 2023.
In recognition of the possibility that some SDX shareholders may prefer cash to receiving equity, Tenaz will make the Cash Alternative available to all SDX shareholders on the following terms:
- Each SDX shareholder retains the right to convert up to 100% of SDX Shares held to Tenaz Shares at the previously announced exchange ratio of 0.075 Tenaz Shares for each SDX Share.
- Each SDX shareholder will have the opportunity to elect to receive 11 pence per SDX Share for any or all of their SDX Shares, in cash and in lieu of receiving Tenaz Shares for the cash settled portion. SDX shareholders who elect to receive a portion of the Transaction proceeds in cash will have the remainder of their SDX Shares converted to Tenaz Shares.
- If no election is made within the election period, SDX shareholders will receive their consideration in the form of Tenaz shares at the previously announced exchange ratio of 0.075 Tenaz Shares for each SDX Share.
The following tables describe the pro forma percent ownership and per share accretion metrics* at various Cash Alternative election levels:
Percent Ownership of Pro Forma Tenaz |
||
Aggregate Election Level |
Existing SDX Shareholders |
Existing Tenaz Shareholders |
100% cash (maximum cash uptake) |
0 % |
100 % |
50% cash (mid-point cash uptake) |
22 % |
78 % |
0% cash (no cash uptake / original all equity transaction) |
35 % |
65 % |
Per Share Accretion* to Existing Tenaz Shareholders |
||
Aggregate Election Level |
Production Per Share* |
Operating Income Per Share* |
100% cash (maximum cash uptake) |
274 % |
418 % |
50% cash (mid-point cash uptake) |
193 % |
280 % |
0% cash (no cash uptake / original all equity transaction) |
141 % |
212 % |
* This is a non-GAAP and other financial measure. Refer to “Non-GAAP and Other Financial Measures” included in the “Advisories” section of this press release.
To the extent that current SDX shareholders elect to receive cash in lieu of Tenaz Shares, it is anticipated that accretion to existing Tenaz shareholders will increase.
In order to provide the Cash Alternative, Tenaz will use its existing cash balance, supplemented by a reserve-based credit facility from ATB Financial. Further details of the credit facility will be provided in the information circular to be mailed to shareholders of Tenaz. If there is full uptake of the Cash Alternative by SDX shareholders, approximately C$35.8 million would be utilized as cash consideration to SDX shareholders. As at March 31, 2022, Tenaz held a cash balance of approximately C$21.8 million. As at March 31, 2022, SDX held approximately C$15.2 million in cash, and an additional C$16.5 million in non-cash net working capital*.
* This is a non-GAAP and other financial measure. Refer to “Non-GAAP and Other Financial Measures” included in the “Advisories” section of this press release.
The Cash Alternative
SDX Shareholders may elect to receive cash instead of some or all of the New Tenaz Shares to which they would otherwise be entitled to under the Combination.
Any SDX Shareholder who validly elects to only receive cash for all of their SDX Shares will receive 11 pence in cash for each SDX Share for which a valid election has been made and no New Tenaz Shares. However, SDX Shareholders may also elect to receive New Tenaz Shares in lieu of part or all of the cash consideration which they would otherwise be entitled to receive pursuant to the Cash Alternative using the following exchange ratio:
for each SDX Share 0.075 New Tenaz Shares
The following table shows, for illustrative purposes only, and on the bases and assumptions set out in the notes below, the financial effects of the Combination on capital value for a holder of 1,000 SDX Shares if the Scheme becomes Effective. The table shows the financial effects for both a holder who receives New Tenaz Shares in accordance with the Exchange Ratio, and a holder who makes an election for the Cash Alternative (i.e. is entitled to receive 11 pence in cash for each SDX Share held).
Column (A) compares the market value of SDX Shares on 24 May 2022 (being the last Business Day prior to the commencement of the Offer Period) with the market value of Tenaz Shares as at the same date. Column (B) compares the market value of SDX Shares on the last practicable date prior to the date of this announcement with the market value of Tenaz Shares as at the same date.
(A) |
(B) |
|
As at |
As at |
|
24-May-22 |
29 June 22 |
|
New Tenaz Shares(1) |
||
Increase in capital value |
||
Consideration received on sale of 1,000 SDX Shares: |
||
Value of 75 New Tenaz Shares received based on the Exchange Ratio (2) |
£102.21 |
£115.57 |
Market value of 1,000 SDX Shares (3) |
£82.50 |
£92.50 |
Increase in capital value |
£19.71 |
£23.07 |
Representing an increase of (4) |
23.9 % |
25 % |
Cash Alternative(1) |
||
Increase in capital value |
||
Consideration received on sale of 1,000 SDX Shares: |
||
Cash |
£110.00 |
£110.00 |
Market value of 1,000 SDX Shares(3) |
£82.50 |
£92.50 |
Increase in capital value |
£27.50 |
£17.50 |
Representing an increase of (4) |
33.3 % |
18.9 % |
Notes: |
|
(1) |
No account has been taken of any potential liability to taxation. |
(2) |
The market values of £102.21 (in column A) and £115.57 (in column B) for 75 New Tenaz Shares implied by the terms of the Combination are calculated based on the Closing Prices per Tenaz Share of: |
(a) C$2.19 per Tenaz Share, and a GBP:CAD exchange rate of 1.607, on 24 May 2022 (being the last Business Day prior to the commencement of the Offer Period); and |
|
(b) C$2.41 per Tenaz Share, and a GBP:CAD exchange rate of 1.564, on 29 June 2022 (being the last practicable date prior to the publication of this document), respectively, multiplied by 0.075 New Tenaz Shares to every SDX Share. |
|
(3) |
The market values of £82.50 (in column A) and £92.50 (in column B) are calculated based on the Closing Prices per SDX Share of: |
(a) 8.25 pence per SDX Share on 24 May 2022 (being the last Business Day prior to the commencement of the Offer Period); and |
|
(b) 9.25 pence per SDX Share on 29 June 2022 (being the last practicable date prior to the date of this announcement). |
|
(4) |
Calculated as the increase in capital value as a proportion of the market value of one SDX Share in percentage terms. |
The Cash Alternative is conditional upon the Scheme becoming Effective. All valid elections under the Cash Alternative will be satisfied in full by Tenaz. If no elections are made for the Cash Alternative, Tenaz would issue approximately 15,614,224 New Tenaz Shares pursuant to the Combination. As a result of the Combination, Tenaz would, in those circumstances, have approximately 44,072,298 Tenaz Shares in issue and SDX Shareholders would together hold approximately 35 per cent. of the Tenaz Shares in issue upon the Scheme becoming Effective.
Recommendation by SDX directors
The SDX Directors (and in providing their advice to the SDX Directors, Rothschild & Co) express no view as to the Cash Alternative. Their views in this regard will be provided in the Scheme Document.
Timing of Scheme Document
As announced on 22 June 2022, the formal Scheme Document containing further information about the Combination and notices of the SDX Meetings, together with the Forms of Proxy and a Form of Election for the Cash Alternative, will be sent to SDX Shareholders no later than 5.00 p.m. (London time) on Tuesday 5 July 2022 (or on such later date as may be agreed between Tenaz and SDX with the consent of the Panel). It is still expected that the Tenaz Circular, which will contain notice of the Tenaz Special Meeting, will be filed and mailed to Tenaz Shareholders on or around the same date as the Scheme Document is posted to SDX Shareholders.
Tenaz and SDX have, with the consent of the Panel, agreed to amend the Longstop Date described in the Rule 2.7 Announcement to be 31 December 2022 (and not 24 May 2023, as previously stated).