Precision Drilling Corporation has entered into an arrangement agreement with Trinidad Drilling Limited pursuant to which Precision has agreed to acquire all of the issued and outstanding common shares of Trinidad (the "Trinidad Shares") on the basis of 0.445 common shares of Precision (the "Precision Shares") for each outstanding Trinidad Share pursuant to a plan of arrangement (the "Transaction").
The aggregate Transaction value is approximately $1,028 million, including the assumption of approximately $477 million in Trinidad net debt. Upon completion of the Transaction, existing holders of Trinidad Shares will collectively own approximately 29% of Precision.
Kevin Neveu, President and Chief Executive Officer of Precision remarked, "This transaction creates exceptional value for both Trinidad and Precision shareholders. The combination provides a truly unique opportunity to combine two highly-focused drilling contractors that are pursuing similar growth initiatives and competitive strategies and importantly, operating similar Tier 1 assets."
"From a strategic perspective, Trinidad is a perfect fit with Precision. We can realize immediate synergies, estimated to be over $30 million, through fixed cost reductions, operational efficiencies and reduced public company costs. Over the long-term, the additional scale will further strengthen Precisionís operating leverage and positions the company to service our customersí continued transition to High Performance drilling services with high spec AC rigs. Additionally, this combination allows us to better differentiate our service offering through our combined industry leading drilling technology initiatives and a larger operating platform."
"The incremental free cash flow generated through this combination will ensure Precision meets or exceeds our long-term debt reduction targets and improves our financial flexibility to pursue growth opportunities in the United States and in international markets."
Unique combination of two highly focused drilling contractors pursuing similar strategies with complementary Tier 1 assets.
- Trinidadís fleet of 141 drilling rigs includes 61 high spec AC rigs that fit 90% within Precisionís standardization protocols and are equipped with major components that are well aligned for fleet integration.
- Precision will have a North American fleet that includes over 200 active rigs and 322 total rigs. As the third largest driller in the U.S., Precision will have strong positions in all key shale plays and will be positioned for improving industry activity. The company will have an expanded platform for technology deployment and an increased inventory of economically upgradeable rigs.
- The company will have improved cash flow generation capabilities in Canada given excellent fixed cost leverage and operating synergies. Trinidadís customer mix and rig fleet is complementary and the company is well positioned for LNG and Deep Basin development. Precision has identified 50 rigs from the combined fleet that it intends to hold as assets for sale.
Immediate cost synergies enhanced by long-term operating efficiencies from increased scale
- In 2019, Precision expects to realize more than $30 million in annual synergies through corporate efficiencies and facility consolidations. Precision will leverage its increased scale and realize long term incremental operating efficiencies through its recently upgraded IT infrastructure, technical support centers in Nisku and Houston and its supply chain management and manufacturing capabilities.
Strong balance sheet and cash flow profile supports Precisionís deleveraging plan and improves financial flexibility to pursue attractive growth opportunities
- Precision will have a strong balance sheet and significant cash flow to fund growth and manage debt maturities. Further, at closing, through an RBC Capital Markets underwritten US$100 million capacity expansion, Precision will increase the size of its revolving credit facility to US$600 million.
Expanded platform for U.S. and international growth and technology deployment
- Precision will benefit from the deployment of international rigs into long-term contracts and Precisionís operating experience, infrastructure and scale in Saudi Arabia and Kuwait will support successful project execution. With an expanded international platform, Precision is well positioned to win future tenders and to leverage the combined companyís fleet of 26 international rigs.
- Leveraging the technology capabilities of both companies will be a priority and Precisionís Process Automation Control (PAC) platform was designed to incorporate third party technologies such as those in the Trinidad technology portfolio. Precision is an industry leader in technology and through the combination Precision will have a total of 167 AC rigs capable of running automation technologies.
Complementary cultures with commitment to people, safety, technology and customers
- Trinidad and Precision have a shared commitment to customer service, best in class assets, strong and effective safety culture, well trained, professional crews and technology leadership. The well-trained and highly-skilled employees at both companies are core to the businessesí success and Precision remains committed to providing exceptional opportunities for the employees of both organizations.
The Precision Board has unanimously approved the Transaction and determined that the Transaction and the entry into of the Arrangement Agreement are in the best interests of Precision. The Precision Board has voted to recommend that holders of Precision Shares vote in favour of the ordinary resolution approving issuance of Precision Shares pursuant to the Transaction. RBC Capital Markets, financial advisor to Precision, delivered a fairness opinion to the Precision Board to the effect that, the consideration to be paid under the Transaction is fair, from a financial point of view, to Precision.
Similarly, the Trinidad Board has unanimously approved the Transaction and determined that the Transaction and the entry into of the Arrangement Agreement are in the best interests of Trinidad and its shareholders. The Trinidad Board has resolved to recommend that holders of Trinidad securities vote in favour of the special resolution approving the Transaction. TD Securities Inc., financial advisor to Trinidad, delivered a verbal fairness opinion to the Trinidad Board to the effect that, the consideration to be paid under the Transaction is fair, from a financial point of view, to holders of Trinidad Shares.
Key Transaction Provisions
The Transaction is expected to be completed in late 2018 and is subject to TSX, court and regulatory approvals and the satisfaction of other customary closing conditions.
The Transaction will require approval by at least 66 2/3% of the Trinidad securities represented in person or by proxy at a special meeting of Trinidad security holders. The issuance of the Precision Shares pursuant to the Transaction will require approval by a simple majority of the Precision Shares represented in person or by proxy at a special meeting of Precision shareholders pursuant to the requirements of the TSX.
Precision and Trinidad expect to mail a joint management information circular with respect to their respective shareholder meetings in November 2018. A copy of the joint information circular will be filed and available for viewing on SEDAR under each of Precision's profile and Trinidad's profile when it is mailed.
Pursuant to the terms of the Arrangement Agreement, Trinidad has agreed that it will not solicit or initiate discussions regarding any other business combination or sale of material assets. Precision has the right to match any superior proposals within a five day period. The Transaction provides for a non-completion fee of $20 million payable by Trinidad in certain circumstances if the Transaction is not completed.
One of Trinidad's current directors will be appointed to the Precision Board, and one of Trinidad's current directors will be nominated for election to the Precision Board at the Precision shareholder meeting, with such appointment and election to be effective upon closing of the Transaction and, thereafter, subject at all times to the fiduciary duties of the Precision Board and the requirements of applicable laws, agreements will be in place with Precision to nominate and recommend such directors for reelection through and including Precision's 2019 annual meeting.
Details of the terms of the Transaction are set out in the Arrangement Agreement, which will be filed and available for viewing on SEDAR under each of Precisionís and Trinidad's profiles at www.sedar.com.