NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES
OR FOR DISSEMINATION IN THE UNITED STATES
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.
CONTACT INFORMATION FOR AKITAAKITA Drilling
Ltd.
Karl RuudPresident and Chief Executive officer+1 403 292
7414www.akita-drilling.com
CONTACT INFORMATION FOR XTREMEXtreme Drilling
Corp.
Matt PorterPresident and Chief Executive officer+1 281 994
4600www.xtremedrillingcorp.com