Trinidad Drilling Ltd. (Trinidad) and CanElson Drilling Inc. (CanElson) are pleased to announce that they have entered into an arrangement agreement to combine both Trinidad and CanElson's premier contract drilling fleets pursuant to a court approved plan of arrangement to create a stronger, more diverse North American drilling company with growth prospects internationally and greater scale and resources. The combined company will operate one of the newest and largest fleets of oil and gas drilling rigs in North America with a combined total of 163 gross land drilling rigs, including eight international rigs under Trinidad's joint venture.
SUMMARY OF TRANSACTION
Under the terms of the Transaction, Trinidad will acquire all of the issued and outstanding common shares of CanElson (the "CanElson Shares") in exchange for a combination of cash and Trinidad common shares (the "Trinidad Shares"). CanElson shareholders will, for each share held, have the option to receive, subject to an aggregate maximum cash payment by Trinidad of $50 million (the "Maximum Cash Consideration"):
- 1.0631 Trinidad Shares (the "Share Consideration"); or
- $4.90 in cash
In the event that the CanElson shareholders elect to receive more than the Maximum Cash Consideration, a pro rata adjustment will be made such that the aggregate amount of cash to be paid to the CanElson shareholders will not exceed the Maximum Cash Consideration.
The Share Consideration offered to the CanElson shareholders is equivalent to a 23.5% premium to the 20-day volume weighted average trading price of the CanElson Shares on the TSX for the period ended June 10, 2015. The total Transaction value is approximately $505 million, including the assumption of approximately $36 million in CanElson debt, including transaction costs. The cash portion of the Transaction will be financed from Trinidad's cash balances and existing bank credit facilities. Upon completion of the Transaction, on a fully diluted basis and assuming the Maximum Cash Consideration is elected, current Trinidad shareholders will own approximately 60% and CanElson shareholders will collectively own approximately 40% of the combined company.
STRATEGIC RATIONALE
The Transaction between CanElson and Trinidad is expected to:
- Allow both the CanElson and Trinidad shareholders to benefit from the combined company's improved ability to capitalize on growth;
- Provide a broader, more diverse drilling platform from which to grow both domestic and international operations to meet customer demand;
- Improve liquidity for all shareholders of the combined company;
- Create greater geographic relevance within key operating areas throughout North America;
- Provide an expanded combined customer base;
- Create a strengthened operation and a stronger combined board of directors and management team; and
- Combine two high quality drilling companies with a strong track record of consistently generating above average utilization levels in Canada and the US.
The Transaction is also expected to provide strategic corporate benefits to Trinidad, including:
- Accretion on a per Trinidad Share basis;
- Significant operational synergies and efficiencies through combining operational facilities and reduced corporate and professional fees;
- Increased opportunities to move equipment to meet customer demand; and
- Reduced corporate leverage.
"The transaction is a compelling strategic fit and offers shareholders, customers, and employees of both companies a significant opportunity, owing to the complementary nature of our respective operations," said Lyle Whitmarsh, Trinidad's Chief Executive Officer. "Our highly experienced and capable leadership will consist of members of the management teams of Trinidad and CanElson, both of which have consistently generated above average utilization rates in Canada and the US."
The board of directors of CanElson (the "CanElson Board") is recommending this transaction for the following reasons:
- Creates a stronger and larger domestic drilling platform from which to grow international operations and enables CanElson shareholders to better participate in additional acquisition opportunities from a larger operating platform;
- Compliments CanElson's management team and positions the company for long term growth;
- Provides CanElson shareholders with a strategic investment opportunity in the third largest drilling contractor in Canada at an exchange ratio that offers a premium to the current share price of approximately 20%;
- Increases CanElson's exposure to a fleet of high quality AC electric heavy double and triple drilling rigs;
- Further diversifies CanElson into the US domestic and international marketplace;
- Provides enhanced exposure to shareholders to a recovery in drilling activity; and
- Potentially enhances CanElson shareholder liquidity, cost of capital and future access to capital to fund future growth and acquisition opportunities.
CanElson's President and Chief Executive Officer, Randy Hawkings, added, "The combined company will be strongly equipped with high-quality rigs across Western Canada, the top oil-focused basins in the US and strategic international markets, including Mexico and Saudi Arabia. Together we will be better positioned to optimize existing assets and operations and pursue new business opportunities. We will have a broader fleet to meet the demands of customers in matching the right rig for the right job and the talent to succeed in all market conditions."
