ENP Newswire -
Release date- 13062014 -
Commenting on behalf of Suroco's Board of Directors,
As we set forth in this press release, Vetra's previous offers to acquire Suroco were consistently lacking in both clarity and any material premium and do not provide shareholders the ability to retain ongoing exposure to the exploration potential that shareholders will be able to participate in under the transaction with Petroamerica. Besides setting forth some of the reasons to reject the Vetra Offer, the Board would also like to take this opportunity to address some of the inaccuracies found in the Vetra Offer and to set the record straight.'
Reasons to Reject the Vetra Offer
The Board of Directors of Suroco, with the assistance of its financial and legal advisors, carefully considered and reviewed the terms and conditions of the Vetra Offer and recommends that Suroco shareholders REJECT the Vetra Offer and instead vote their common shares of Suroco IN FAVOUR of the proposed combination transaction with
The Vetra Offer does not provide a premium to shareholders. Contrary to the claims by Vetra, the Vetra Offer does not provide a premium to the plan of arrangement transaction with Petroamerica (the 'Petroamerica Arrangement'). Vetra's Offer constitutes a 4.8% discount to the
Furthermore, based upon the
The Vetra Offer is highly conditional. The Board is concerned that the Vetra Offer is highly conditional, to the benefit of Vetra, and contains no less than 25 conditions which must be satisfied or waived before Vetra is obligated to take up and pay for common shares of Suroco deposited under the Vetra Offer. Many of the conditions are not subject to a materiality threshold but rather provide Vetra with very broad discretion to decline to proceed with the Vetra Offer.
Based on the foregoing, the Vetra Offer does not provide the certainty that it so claims and Suroco shareholders should realize that tendering to the Vetra Offer would, in effect, grant Vetra a free option to acquire the tendered shares. There is also at least one condition that it appears cannot be satisfied based upon existing circumstances.
Vetra taking up and paying for more than 50% of Suroco's outstanding common shares pursuant to the Vetra Offer will constitute a 'Change of Control' under Suroco's principal secured credit facility and 30 days thereafter an 'Event of Default' under such credit facility, at which time Suroco will be obligated to repay the approximately
Vetra has included in the Vetra Offer a condition that there be no event of default or acceleration in relation to any agreement to which Suroco is subject, as a consequence of taking up and paying for Suroco common shares under the Vetra Offer. It would appear that this condition cannot be satisfied, creating additional uncertainty as to whether the Vetra Offer can proceed.
The Vetra Offer is inherently coercive. The Vetra Offer is structured such that Vetra need only acquire 50.1% of the Suroco common shares (on a fully diluted basis) in order to complete the Vetra Offer, and thus Vetra may gain effective control of Suroco without any obligation to acquire the outstanding common shares of Suroco that were not tendered to the Vetra Offer.
This is inherently coercive because, absent the Petroamerica Arrangement, it forces Suroco's shareholders to decide whether to accept the Vetra Offer, sell into the market or reject the Vetra Offer and maintain their position without knowing whether and to what extent other shareholders might accept the Vetra Offer.
Accordingly, if the Petroamerica Arrangement does not proceed, a Suroco shareholder may feel compelled to tender its Suroco common shares to the Vetra Offer even if the shareholder considers the Vetra Offer consideration to be unacceptable, out of a concern that Vetra may acquire less than 100% of Suroco, with the result that the shareholder may be left holding a minority investment, at a reduced price, reflective of a minority discount in a company under the control of Vetra and with reduced liquidity in the Suroco common shares.
Vetra is attempting to extract value that should accrue to existing Suroco shareholders. Vetra holds interests in three out of five of Suroco's oil and gas exploration and production properties in
To date, Vetra has repeatedly attempted to acquire Suroco for cash and at 'low-ball' prices. The Vetra Offer is a further attempt to acquire ownership of Suroco's assets in a manner whereby existing Suroco shareholders are precluded from participating in Suroco's anticipated growth.
The Board of Directors continues to believe that the proposed Petroamerica Arrangement will provide long term value in excess of the consideration being offered under the Vetra Offer. The Petroamerica Arrangement creates a combined company holding interests in eleven (11) exploration and production contracts focused on high netback light and medium oil exploration and production in the Llanos and Putumayo Basins in
Suroco's management believes that the Putumayo 7 Block may contain an extension of the recently discovered Quinde field and when drilled, is expected to add significant value to the combined company, under better economic terms than the Suroriente Block. By tendering their shares to the Vetra Offer, Suroco shareholders will not have the opportunity to realize the potential of the opportunities on the Putumayo 7 Block.
The combined company will have a strong, underlevered balance sheet that is expected to fully fund the future development and exploration of its asset base. As of
Petroamerica held over
Petroamerica has an established history of deal making and delivering reserves and production growth that has resulted in substantial value creation for its shareholders. Petroamerica has grown net production from an average of 155 barrels of oil equivalent per day ('boepd') in the first quarter of 2012 to 6,478 boepd in the first quarter of 2014.
Petroamerica has also increased working interest proved plus probable reserves from 3.0 million barrels of oil as at
ISS Proxy Advisory Services Recommends the Petroamerica Arrangement over the Vetra Offer. ISS Proxy Advisory Services ('ISS') has published a report recommending their clients vote IN FAVOUR of the Petroamerica Arrangement and that the Vetra Offer does not appear compelling enough to warrant a change in its voting recommendation.
The Vetra Offer is not supported by Suroco's largest shareholder nor by Suroco's directors and officers.
Inaccuracies Made by Vetra
Furthermore, the Board of Directors would like to address numerous inaccurate claims made by Vetra in its description of its previous approaches to Suroco. As Suroco disclosed in its Circular that has been sent to shareholders (a copy of which can also be found on Suroco's profile on SEDAR at www.sedar.com), Vetra has made prior offers to Suroco, which offers, as set forth below, have been inadequate from the standpoint of consideration being offered and as to details surrounding proposed terms, for example:
Instead of providing to Suroco a detailed term sheet, which one could expect in any serious offer, Vetra provided a 1 and 1/4 page letter making a non-binding offer that was subject to due diligence and without any disclosure on financing certainty, or clarity on any material conditions to closing a transaction.
At the date that Vetra was informed that the Board of Directors of Suroco was unable to determine that Vetra's
Agreement, Vetra would have understood what would constitute a 'Superior Proposal' under the Arrangement Agreement, the receipt of which would have allowed Suroco to negotiate without triggering payment of the break fee under the Arrangement Agreement. Instead, Vetra provided an incomplete and financially inadequate offer and then claims that Suroco just refused to negotiate with Vetra without providing the complete set of facts as to why Suroco was unable to negotiate without triggering a break fee.
Suroco suggested that Vetra enter into Suroco's standard form confidentiality agreement and standstill so that Vetra would have full and proper access to all relevant data concerning Suroco and its assets that it did not already have, and so that Vetra could make a revised offer to Suroco, but Vetra declined to enter into such confidentiality agreement, nor negotiate any further with Suroco.
After discussions with management and Suroco's financial advisor, the Board of Directors determined that Vetra was making a 'low-ball' offer as the consideration offered was significantly below Suroco's retention value for such asset, as well as below precedent transaction metrics.
Vetra was obviously aware of all the above facts but has elected not to disclose them, which is disappointing as Vetra attempts to present itself as a credible entity trying to buy Suroco. Given the foregoing, and the fact that the Vetra Offer is so highly conditional, Suroco questions whether Vetra's true motivations are in fact to attempt to disrupt the completion of the Petroamerica Arrangement, rather than completing the Vetra Offer.
Vetra's claim that Suroco is diluting minority rights through its dealings with
Although the Corporation considered a number of sources for the funds necessary to complete this acquisition, including an equity financing, the Petroamerica Arrangement and certain commercial matters, including the inability to obtain certain required third party consents, made it impossible to pursue those alternatives.
After a consideration of the alternatives available to the Corporation and the likely advantages to the shareholders of both Suroco and the resulting entity from the Petroamerica Arrangement, the Board of Directors ultimately determined to borrow the required funds from Alentar. The Alentar loan is the least dilutive of the options that were available to Suroco.
As a lender to Suroco, Alentar is ultimately treated no differently if Petroamerica or Vetra acquires Suroco, and Vetra's assertion is a poorly disguised attempt to suggest that Alentar somehow has materially different motivations in completing a transaction than other shareholders. This is untrue.
The Board of Directors' unanimous recommendation to Suroco shareholders that they REJECT the Vetra Offer and instead vote their Suroco shares IN FAVOUR of the Petroamerica Arrangement, as well as a more detailed discussion of the reasons for rejecting the Vetra Offer and corrections to Vetra's numerous inaccuracies shall be set out in the Directors' Circular that will be mailed in due course to each of Suroco's shareholders in compliance with applicable securities laws and filed with Canadian securities regulatory authorities.
The Directors' Circular will be available on SEDAR at www.sedar.com and on Suroco's website at www.suroco.com. Shareholders are advised to read the Directors' Circular carefully and in its entirety, as it will contain important information regarding Suroco and the Vetra Offer. If shareholders of Suroco have any questions or require more information, they are encouraged to contact Suroco's proxy solicitation agent,
How to Vote IN FAVOUR of the Petroamerica Arrangement
Any Suroco shareholder that has already voted IN FAVOUR of the Petroamerica Arrangement need not take any action, as their votes will be counted. Any Suroco shareholder who has voted AGAINST the proposed combination transaction is encouraged to change its vote and vote IN FAVOUR of the Petroamerica Arrangement.
Registered shareholders of Suroco are requested to complete, date, sign and return the form of proxy that accompanied the Circular (a copy of which can also be found on Suroco's profile on SEDAR at www.sedar.com and which was filed on
To be valid, the form of proxy must be signed and forwarded so as to reach, or be deposited with, Suroco's transfer agent, Computershare Trust Company of
Non-registered shareholders who receive voting instructions from their intermediary should carefully follow the instructions provided by their intermediary to ensure their vote is counted.
If you have any questions that are not answered by the Circular, or would like additional information, you should contact your professional advisors. You can also contact Georgeson, the proxy solicitation firm engaged by Suroco, toll-free at 1-888-605-7641 or outside
How to REJECT the Vetra Offer and Withdraw Tendered Shares
To reject the Vetra Offer, you should do nothing. The Vetra Offer is open for acceptance until
Shareholders may also contact the proxy solicitation firm retained by Suroco,
Suroco is a
Tel: (403) 232-6784
Fax: (403) 232-6747
Certain statements included in this press release constitute forward-looking statements under applicable securities legislation. These statements relate to future events or future performance of the Corporation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as 'may', 'will', 'should', 'expect', 'plan', 'anticipate', 'believe', 'estimate', 'predict', 'potential', 'continue', or the negative of these terms or other comparable terminology.
Forward-looking statements or information in this press release include, but are not limited to, statements concerning the expected benefits of the Petroamerica Arrangement including expected operational results and cash flows of the combined company following the completion of the Petroamerica Arrangement, the long term value of the combined company and other statements that are not historical facts. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur.
By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements.
These assumptions, risks and uncertainties include, among other things, the state of the economy in general and capital markets in particular; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; changes in environmental and other regulations; risks associated with oil and gas operations and future exploration activities; the need to obtain required approvals from regulatory authorities; product supply and demand; market competition; political and economic conditions in the country in which the Corporation operates and other factors, many of which are beyond the control of the Corporation.
You can find an additional discussion of those assumptions, risks and uncertainties in Suroco's Canadian securities filings.
The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, Suroco disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, Suroco undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above.
New factors emerge from time to time, and it is not possible for management of the Corporation to predict all of these factors and to assess in advance the impact of each such factor on the Corporation's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement or information.
The forward-looking statements contained herein are expressly qualified by this cautionary statement. Moreover, neither the Corporation nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.
Most Popular Stories
- Americans Still Pessimistic Despite Economic Growth
- Apple to Unveil New Items on Sept. 9
- Friends Followed Similar Paths to Violent Jihad
- Obama Puts Ukraine Violence on Russia
- Hillary Clinton Breaks Silence on Ferguson
- Janet Yellen's Assets Grew by 8 Percent in 2013
- California Moves Toward Ban on Plastic Bags
- Petit Retires 46 Batters in a Row, MLB Record
- Axxis Solutions Appoints Benites as CEO
- Identity Thieves Prey on Job Seekers