/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED
STATES/
CALGARY, June 5, 2018 /CNW/ - AKITA Drilling Ltd.
(TSX:AKT.A; TSX:AKT.B) and Xtreme Drilling Corp. (TSX:XDC) are
pleased to announce their entry into a definitive arrangement
agreement to combine the two companies to create a leading
intermediate North American land drilling contractor. The
combined company, which will operate under the AKITA name, will
have a fleet of 44 high-spec drilling rigs with operations in major
resource basins in the US and Canada.
The combination will be completed by way of a plan of
arrangement under the Business Corporations Act
(Alberta).
The combination with Xtreme, which has a strong operating
history and rig technology credentials in the US, provides AKITA
with immediate scale in the US market, building upon its recent
strategic expansion into the Permian.
The total transaction value is approximately $209 million, including the assumption of
approximately $10 million of Xtreme's
net debt (as at March 31, 2018).
Under the terms of the transaction, Xtreme shareholders will
receive 0.29 of an AKITA Class A non-voting common share and
$0.59 in cash for each share of
Xtreme common stock. An Xtreme shareholder may elect to
receive a different combination of AKITA Class A shares and cash,
in each case subject to proration such that the aggregate
consideration to be paid by AKITA will not exceed $45 million in cash and will not exceed
22,235,458 AKITA Class A shares. The consideration to be received
by Xtreme shareholders represents a 32% premium over the 20-day
volume weighted average price of the Xtreme shares for the period
ended June 4, 2018.
The cash consideration will be financed from AKITA's cash
balances and new credit facilities of $120
million and US$5 million which
have been committed by ATB Financial.
STRATEGIC RATIONALE
The combination provides the following compelling benefits to
the shareholders of both companies:
- Combines two complementary companies, each with a focus on
high-spec drilling rigs and disciplined operations that deliver
leading performance for customers
- Provides AKITA with immediate scale in the US market, building
upon its recent strategic expansion into the Permian, and the
potential for premium dayrates and margins
- Maintains a leading position in active Canadian markets,
including oil sands maintenance drilling operations, with leverage
to a longer-term recovery in Canadian drilling activity
- Expands operational and customer network across all major North
American resource basins providing the flexibility to deploy high
quality drilling rigs on both sides of the border to optimize
utilization and returns
- Provides greater financial capacity to support potential
newbuilds, including on Xtreme's 850XE premium spec platform or
AKITA's high spec multi rig platform design which both have a
proven premium value proposition for pad development
- Improves liquidity for all shareholders through increased scale
and a larger public float, with a pro forma market capitalization
of $270 million
- Offers meaningful value creation opportunity from an estimated
$8 million in annual recurring
synergies and efficiencies
- Provides a differentiated opportunity to invest in a pure play
drilling contractor with both Canadian and US exposure that has a
strong balance sheet and liquidity
"The transaction is a continuation of AKITA's strategy of
capitalizing on the improving fundamentals in the US land drilling
market," said Karl Ruud, AKITA's
President & Chief Executive Officer. "Our highly experienced
and capable leadership, which has run one of Canada's most successful and stable drilling
contractors, will lead the combined company into a new stage of
growth while continuing to deliver on AKITA's objective to increase
shareowner value."
Linda Southern-Heathcott, Chair
of the Board of AKITA, added: "In approving the transaction, the
AKITA Board has reaffirmed its commitment to the company's growth
strategy with the goal of increasing shareholder value."
Xtreme shareholders will have the opportunity to realize all of
the benefits of the transaction through significant share ownership
in the combined company in addition to realizing immediate
liquidity through aggregate cash consideration of $45 million.
Xtreme's President and Chief Executive Officer, Matt Porter, added, "The combined company will
have a larger and stronger platform to continue Xtreme's strategy
of providing high-spec drilling rigs with a premium value
proposition for the US market. Together we will be better
positioned to optimize existing assets and pursue new business
opportunities. Our shareholders will be part of a strongly
capitalized, historic dividend-paying and disciplined organization
that will execute on growth while focusing on shareholder
returns."
DETAILS OF THE ARRANGEMENT
Under the terms of the transaction, Xtreme shareholders will
receive 0.29 of an AKITA Class A non-voting common share and
$0.59 in cash for each share of
Xtreme common stock. An Xtreme shareholder may elect to
receive a different combination of AKITA Class A shares and cash,
in each case subject to proration such that the aggregate
consideration to be paid by AKITA will not exceed $45 million in cash and will not exceed
22,235,458 AKITA Class A shares.
The transaction is expected to be completed in the third quarter
of 2018 and is subject to customary TSX, Court and regulatory
approvals and other closing conditions. The transaction will
require approval by a two-thirds majority of the Xtreme shares
represented at a special meeting of Xtreme shareholders. The
issuance of the AKITA Class A shares pursuant to the transaction
will be subject to AKITA shareholder approval in accordance with
TSX requirements. Pursuant to the requirements of the TSX, the
AKITA shareholder approval is expected to be comprised of either an
ordinary resolution approved by a majority of the holders of Class
B Common Shares of AKITA or written evidence that holders of more
than 50% of the Class B Common Shares of AKITA are familiar with
the terms of the transaction and are in favour of it. In addition,
and conditional upon the completion of the transaction, one member
of the Xtreme board of directors will join the AKITA board at
closing. At close, the AKITA board will continue to include
Loraine Charlton, Linda Southern-Heathcott, Harish Mohan,
Dale Richardson, Karl Ruud, Nancy
Southern, Perry Spitznagel,
Harry Wilmot, and Charles Wilson.
The transaction has received unanimous approval by the boards of
directors of both AKITA and Xtreme, and each will recommend the
transaction to their respective shareholders for
approval.
In addition, all of the directors and officers of Xtreme have
entered into support agreements to vote in favour of the
transaction and the holder of the majority of Class B Common Shares
of AKITA, has entered into a support agreement to vote in favor of
the issuance of the AKITA shares.
Pursuant to the terms of the arrangement agreement, each of
Xtreme and AKITA have agreed that they will not solicit or initiate
discussions regarding any other business combination or sale of
material assets. The Xtreme Board and AKITA Board may respond to
unsolicited proposals, subject to certain requirements, including
notification to the other party and matching rights. The
transaction provides for a reciprocal non-completion fee of
$4.2 million payable in certain
circumstances if it is not completed and a mutual third party
expense reimbursement fee payable in the event of certain material
breaches of the arrangement agreement.
Complete 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 AKITA and Xtreme's profiles
at www.sedar.com.
ADVISORS
ATB M&A Advisory Services is acting as exclusive financial
advisor, Bennett Jones LLP is acting as legal advisor and Felesky
Flynn LLP is acting as tax advisor, to AKITA. Tudor,
Pickering, Holt & Co. is acting as exclusive financial advisor,
and Stikeman Elliott LLP is acting as legal advisor, to Xtreme.
ABOUT AKITA
AKITA is an Alberta corporation
engaged in the contract drilling business in Western Canada, the North, and the Permian
Basin. The Company was an early adopter of pad rig technology and
currently enjoys a dominant market share in heavy oil operations,
with pad rigs making up approximately one-half of its deep capacity
fleet. AKITA has been a pioneer among drilling companies in
forming mutually beneficial joint ventures with the First Nations,
Inuit and Metis people living proximate to areas of concentrated
oil and gas development. The Company recently celebrated its
25th anniversary as a public company and is listed on
the Toronto Stock Exchange under the symbol AKT. More
information about AKITA can be found at
http://www.akita-drilling.com.
ABOUT XTREME
Xtreme Drilling Corp. ("XDC" on the Toronto Stock Exchange)
designs, builds, and operates a fleet of high specification AC
drilling rigs featuring leading-edge proprietary technology.
Currently, Xtreme operates one service line - Drilling Services
(XDR) under contracts with oil and natural gas exploration and
production companies and integrated oilfield service providers in
the United States. For more
information about the Company, please visit
http://www.xtremedrillingcorp.com.
This news release shall not constitute an offer to sell or the
solicitation of an offer to buy the shares in any jurisdiction. The
shares offered will not be and have not been registered under the
United States Securities Act of 1933 and may not be offered or sold
in the United States or to a
United States person, absent
registration, or an applicable exemption therefrom.
CURRENCY
All amounts are stated in Canadian dollars unless otherwise
noted.
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking information
(collectively referred to herein as "forward-looking statements")
within the meaning of applicable Canadian securities laws.
Forward-looking statements are often, but not always, identified by
the use of words such as "anticipate", "believe", "plan",
"potential", "intend", "focus", "estimate", "expect", "may",
"will", "could", "should", or similar words suggesting future
outcomes. More particularly, this press release contains statements
concerning the proposed combination including the impact of the
combination on AKITA and AKITA's plans, the timing and anticipated
dates for the shareholder meetings to consider matters relating to
the combination, the anticipated receipt of all Court and
regulatory approvals in respect of the combination, the
satisfaction of all parties to the conditions to closing of the
combination, the anticipated closing time of the combination, the
effect and benefits of the combination, the expected composition of
the board of directors of AKITA following completion of the
combination and the expected treatment of the securities of AKITA
in connection with the Arrangement. The payment of any
dividend by AKITA is at the discretion of the board of directors of
AKITA and depends on the financial condition of AKITA and other
factors.
The completion and timing of the combination are based on a
number of assumptions, including the timely receipt of all required
shareholder, Court and regulatory approvals for the combination and
the satisfaction of other closing conditions in accordance with the
terms of the Arrangement Agreement. The forward-looking statements
contained in this document are based on certain key expectations
and assumptions made by AKITA and Xtreme relating to the successful
completion of the Combination, approval of the combination by
Xtreme shareholders and the approval of the issuance of AKITA
shares pursuant to the combination by the AKITA shareholders,
prevailing commodity prices, the demand for drilling rigs and other
oilfield services and the continued availability of capital and
skilled personnel. Although AKITA and Xtreme consider these
assumptions to be reasonable based on information currently
available, undue reliance should not be placed on the
forward-looking statements because AKITA and Xtreme can give no
assurance that they may prove to be correct.
Completion of the combination could be delayed if parties are
unable to obtain the necessary regulatory, stock exchange,
shareholder and Court approvals on the timeline planned. The
combination will not be completed if all of these approvals are not
obtained or some other condition of closing is not satisfied.
Accordingly, there is a risk that the combination will not be
completed within the anticipated time or at all.
By their very nature, forward-looking statements are subject to
certain risks and uncertainties (both general and specific) that
could cause actual events or outcomes to differ materially from
those anticipated or implied by such forward-looking statements.
The forward-looking statements contained in this press
release are made as of the date hereof and AKITA and Xtreme do not
undertake any obligation to update publicly or to revise any of the
included forward-looking statements, except as required by
applicable law. The forward-looking statements contained herein are
expressly qualified by this cautionary statement.
SOURCE AKITA Drilling Ltd.