Calgary-based Vermilion said the deal will allow the company to increase its light oil production in Canada and the US.
Spartan Energy, which has assets in Southeast Saskatchewan, has an annual production rate of 23,000 barrels of oil equivalent per day (boed). As a result of the takeover, Vermilion estimates its oil output this year will climb to 86,000 to 90,000 boed from a previous forecast of 75,000 to 77,500 boed.
“At first glance this looks like a very good deal for Vermilion,” Dave Popowich, an analyst at CIBC World Markets, said in a note to clients. “We have seen Vermilion as a natural acquirer of assets in the ongoing industry downturn, and the company clearly sees good value in Canada at current asset prices.”
Under the deal, Vermillion will offer C$1.23 billion of its own shares and take on C$175 million of Spartan’s debt. That represents a premium of 5 percent based on Friday’s (April 13) closing prices.
The deal is an opportunistic one for Vermilion and allows Spartan to escape “an increasingly frustrating” market where investors haven’t rewarded its operational expertise with a fair stock price, said analyst Kristopher Zack of Desjardins Capital Markets in a report.
He said he doesn’t think a superior bid will emerge, despite Spartan getting only a 5-percent premium over Friday’s closing price. There is a $40-million break fee if the deal isn’t completed.
The transaction still requires standard regulatory and shareholder approval, but it’s expected to close on June 15. TD Securities, GMP FirstEnergy and Peters & Co. provided advice to Spartan on the deal.
On Tuesday (April 17), shares of Vermilion were down 1 percent in Toronto at C$43.40. Meanwhile, shares of Spartan were down 1.26 percent in Toronto at C$6.30.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.