By Don Curren
TORONTO--Two small, Calgary-based energy companies are merging
to create a $1.8 billion venture focused on oil production in
Africa with improved finances and bigger growth potential.
Caracal Energy Inc. and TransGlobe Energy Corporation said in a
news release they have entered into an agreement to merge the two
companies through an exchange of shares.
Total market capitalization of the new company would be
approximately $1.8 billion, based on March 14, 2014 closing prices,
according to the release.
The transaction comes as Canadian energy companies show a
renewed appetite for deal making after a slow 2013. Signs of
improving commodity prices and better overall market conditions
spur greater risk taking by firms to grow through acquisitions, and
by investors to provide financing for transactions.
In February, Canadian Natural Resources Ltd. agreed to acquire
Devon Energy Corp.'s Western Canadian natural gas and light oil
assets for about C$3.125 billion. Also last month, Calgary-based
Baytex Energy Corp. signed a deal to buy Australia's Aurora Oil and
Gas Ltd. for C$1.8 billion.
The release said the Caracal/TransGlobe deal would result in an
"improved financial position" with a pro forma cash position of
$302 million, a growing cash flow profile, and no net debt as at
Dec. 31, 2013.
"This transaction will clearly benefit both companies and their
shareholders, as the enhanced scale will expedite production growth
and increase cash flow," Gary Guidry, Caracal's president and chief
executive, said in the release.
The company would have oil production in Chad and Egypt and an
interest in assets in Yemen.
The companies are forecasting the new venture would have "strong
growth in oil production and reserves" from development and
exploration in Chad and Egypt.
They say the enhanced scale created by the merger would provide
a platform for future organic and acquisition growth in Africa.
Under the merger deal, each TransGlobe shareholder will receive
1.23 new common shares of Caracal in exchange for each TransGlobe
common share.
It is expected Caracal shareholders would hold about 65.6% and
former TransGlobe shareholders would hold approximately 34.4% of
the shares in the new company, after adjusting for the conversion
of Caracal's outstanding convertible debentures, the release
said.
Ben Dummett in Toronto contributed to this article.
Write to Don Curren at don.curren@wsj.com
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