Velvet Energy Commences Previously Announced Premium All Cash Offer To Acquire Iron Bridge Resources; Issues Letter To Shareholders
- Offers $0.75 in cash per common share, representing an immediate 58% premium to the closing price of the Iron Bridge common shares on the TSX on May 11, 2018
- Iron Bridge shareholders can tender their shares now by contacting Kingsdale Advisors at 1-866-879-7650 or by e-mail at [email protected]
- Offer remains open until September 12, 2018 at 5:00 p.m. (Toronto time)
CALGARY, Alberta, May 29, 2018 (GLOBE NEWSWIRE) -- Velvet Energy Ltd. (“Velvet” or “We” or “Us”) announced today that, further to its press release of May 22, 2018, it has filed its Offer to Purchase and Circular (the “Circular”) on SEDAR and has formally commenced its all-cash offer (the "Offer") to purchase all of the issued and outstanding common shares of Iron Bridge Resources Inc. ("Iron Bridge") (TSX:IBR) for $0.75 per common share.
The fully-funded Offer represents a 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) and provides shareholders with immediate liquidity and certainty.
Notice and advertisement of the Offer was placed in the May 29, 2018 edition of the National Post and Le Devoir. The Circular will be mailed to all Iron Bridge shareholders. In conjunction with the Circular, Velvet is mailing a letter to shareholders detailing the benefits of the Offer and addressing several of the operational and financial difficulties plaguing Iron Bridge. A copy of the letter to shareholders is also included below. Iron Bridge shareholders are urged to tender their shares early and in any case prior to the deadline on September 12, 2018 at 5:00 p.m. (Toronto time). If you have questions or need help tendering your shares, contact Kingsdale Advisors at 1-866-879-7650 or at [email protected] More information about the Offer is available at Kingsdale Advisors' website.
Letter to Iron Bridge Shareholders
Dear Iron Bridge shareholder:
I, on behalf of Velvet Energy Ltd. ("Velvet"), want to take this opportunity to personally invite you to consider our fully-valued all-cash offer (the "Offer") that gives you an opportunity to realize a significant premium and immediate liquidity for your investment in Iron Bridge Resources Inc. ("Iron Bridge").
Velvet is making the Offer directly to you – the owners of Iron Bridge – to acquire all of the issued and outstanding common shares of Iron Bridge. 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.
We believe that the choice before you is clear:
- an opportunity to realize a significant 58% premium and immediate cash for your investment in Iron Bridge; or
- the status quo of shareholder value destruction evidenced by the 40% decline in the price of Iron Bridge common shares in the 12 months prior to our Offer.
Your company is at an inflection point given its exhausted cash resources and poor past capital allocation decisions – you can accept our 58% premium all-cash Offer or you can take the risk of attempting to raise dilutive capital in the face of uncertain and volatile markets.
Background of the offer
Velvet is a full-cycle exploration and production company focused in the liquids-rich window of the Deep Basin and light oil window of the Montney in Alberta.
An adjacent landowner to Iron Bridge's mid-Montney land package, Velvet — as the natural acquirer of the land — approached Iron Bridge on March 9, 2018 with a view to negotiating a mutually agreeable transaction. Despite our repeated efforts over the subsequent months to discuss a shareholder value-maximizing transaction, over time it became clear that Iron Bridge would not constructively engage with us. As a result, we decided to bring our Offer directly to you, the owners of Iron Bridge.
Reasons to accept the offer
We believe that our fully-valued, premium Offer is compelling and represents a superior alternative to the risks of continuing to hold Iron Bridge common shares. As you make your decision, consider the following important facts regarding Velvet's Offer:
Our Offer represents a significant premium to market price. The Offer represents a significant 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.
Our Offer provides a premium valuation for Iron Bridge. The Offer represents a 2018 Enterprise Value (EV)/EBITDA multiple of 12.2x 2018 consensus EBITDA for Iron Bridge. This valuation represents a significant premium to Iron Bridge's Montney peer group median consensus 2018 EV/EBITDA multiple of 6.6x.
Our Offer represents full value. The Offer factors the most recent results of Iron Bridge, execution shortfalls and a history of significantly underperforming market-announced production capacity. Iron Bridge's often-referenced Net Asset Value (NAV) per share is simply not supportable, as you will read in the Offer to Purchase and Circular, which we have filed today.
Our all-cash Offer is fully-financed. Velvet has arranged fully-committed financing to complete the transaction, giving shareholders certainty of value and immediate liquidity in the face of volatile markets and significant uncertainty as to Iron Bridge's ability to finance and execute its business plan.
The status quo is AN INFERIOR option
Shareholders should critically evaluate Iron Bridge's ability to realize its claimed Net Asset Value (NAV) per share or any claims that remaining an Iron Bridge shareholder carries hidden or undervalued upside, or that the Offer in any way limits shareholder choice. While Velvet sees the value in Iron Bridge's land package when combined with ours, we also see a company with poor operating results and financial performance, and great uncertainty in its ability to finance and execute its business plan.
Limited financing alternatives available. Iron Bridge's valuations are based on potential future production that the company cannot finance. The company's publicly disclosed NAV per share requires over $200 million of development capital (NPV10% before tax). Raising more than 2.2x the pre-Offer market capitalization will prove challenging for Iron Bridge in today's energy sector, where access to, and the cost of, equity and debt financing is challenging, particularly for micro-cap issuers. Put another way, Iron Bridge cannot raise the capital it needs without significant dilution or increased debt servicing costs. These are costs directly borne by you, the shareholders.
An unsustainable cost structure. Iron Bridge's general and administrative expense was $9.54/boe or more than 30% of cash costs in the first quarter of 2018 – significantly higher than the Montney peer median of $1.41/boe.
Exhausted cash resources. Based on Iron Bridge's most recent quarterly disclosure, marginal operating cash flows and heavy capital expenditures have fully consumed net working capital, which declined from a surplus of approximately $40.7 million at September 30, 2017, to a surplus of approximately $21.7 million at December 31, 2017, to a deficit of approximately $2.2 million at March 31, 2018.
Problematic land geometry. Iron Bridge's land geometry relative to neighboring land blocks is fragmented and in places completely surrounded. This does not allow for long-reach horizontal wells to be optimally situated, meaning future wells will be sub-optimal from a geological perspective and by extension will continue to constrain return on capital. Velvet's offsetting land position can remedy these geometrical constraints. Importantly, the value of this synergy is fully reflected in Velvet's significant 58% premium, all-cash Offer. If Iron Bridge were to continue to develop its acreage with suboptimal wells, Iron Bridge's assets may become less valuable to Velvet or other acquirers in the future.
Velvet believes that, if the Offer is not successful, it is likely that the price of Iron Bridge's common shares will decline to pre-Offer levels or lower.
Rejecting Velvet's fully-funded Offer involves a future with real risk; accepting our Offer involves certainty of an all-cash, fully-valued premium Offer.
The time to act is now: 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 [email protected] We hope you will accept our significant premium all-cash offer.
President and Chief Executive Officer
Velvet has retained BMO Capital Markets as its exclusive financial advisor. 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 protected]
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 22,000 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.
Certain statements contained in this news release constitute forward-looking information within the meaning of applicable securities laws. Forward-looking information can be generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “expected”, “intend”, “may”, “will”, “project”, “plan”, “should”, “believe” and similar expressions. Specifically, forward-looking information in this news release includes statements respecting the Offer, including the benefits, results, effects and timing of any such transaction and the completion thereof, if at all. Forward-looking statements in this news release describe the expectations of Velvet as of the date hereof. These statements are based on assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including without limitation, the ability to obtain regulatory approvals and meet the other conditions to any possible transaction. Although Velvet believes the expectations reflected in these forward-looking statements and the assumptions upon which they are based are reasonable, no assurance can be given that actual results will be consistent with such forward-looking statements, and they should not be unduly relied upon.
For further information:
President and Chief Executive Officer
Chief Financial Officer
Vice President, Finance
Ian Robertson, 416-867-2333
Executive Vice President, Communication Strategy