Bigger Is Better: Trinidad Drilling To Acquire CanElson Drilling

Trinidad Drilling (TSE:TDG) disclosed plan to buy CanElson Drilling (TSE:CDI) for $505 million on Friday before trading hours. CDI shareholders can receive 1.0631 TDG shares or $4.90 in cash subject to a maximum $50 million cash payment. This suggests about an 18% premium to CDI’s closing share price of $4.27 at the close on June 10th.

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.

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.”

About

Gavin Donnelly, MBA (from Columbia University, New York), is financial analyst and covers Services, Financial & REIT and Healthcare sectors. Prior joining Market Cash Cow, Gavin Donnelly worked with Cleveland Research. If you have a great story idea for Gavin Donnelly, you can write at [gavin.donnelly@marketcashcow.com ].

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