High Arctic Energy Services Inc. (TSX: HWO) ("High Arctic" or the
"Corporation") is pleased to announce that its Board of Directors
(“Board”) has unanimously approved the reorganization of High
Arctic to separate the Corporation's North American and Papua New
Guinea ("PNG") businesses, by way of a court-approved plan of
arrangement (the "Arrangement"), as well as a distribution of
surplus cash to shareholders by way of a return of capital of up to
$38.2 million (up to $0.76 per common share) of High Arctic (the
"Return of Capital"). The Arrangement will transfer High Arctic's
PNG business to a separate, dedicated, and independent, publicly
traded company named "High Arctic Overseas Holdings Corp."
("SpinCo"), while High Arctic will continue to own and operate the
Corporation's existing North American Business. Each of the two
companies will have its own management and operational teams and
separate Board of Directors.
Under the proposed Arrangement, each shareholder
of High Arctic ("Shareholder") will receive one-quarter of one
(1/4) common share of SpinCo ("SpinCo Common Share") and
one-quarter of one (1/4) common share of post-Arrangement High
Arctic for each common share of High Arctic held. The Arrangement,
the Return of Capital, and other resolutions related to the
reorganization, as well as annual meeting matters, will be put to
the Shareholders for approval at an annual general and special
meeting of shareholders of the Corporation to be held in Calgary,
Alberta on June 17, 2024 (the "Meeting"). As a result of the
Arrangement, each Shareholder will continue to own its pro rata
portion of both SpinCo and post-Arrangement High Arctic.
Strategic Rationale
High Arctic’s Board and management are of the
view that the Corporation has historically been unable to derive
appropriate value from the market that represents the sum of the
parts. The Corporation has also found a lack of synergy between
the businesses in PNG and Canada. In separating the PNG business
from the Corporation, High Arctic’s Board and management believe
value can be created for the Shareholders. For the holders of
SpinCo Common Shares, separation provides the opportunity for
SpinCo to consider transactions with a wider group of PNG focused
companies, and greater flexibility to relocate in the future to a
market that better understands PNG and is likely to ascribe
greater value to SpinCo. For the holders of post-Arrangement High
Arctic common shares, the transaction opens-up opportunities for
High Arctic to participate in Canadian M&A activity where the
PNG business may have been perceived as an impediment to accretive
transactions.
For years the Corporation has both pursued or
entertained potential business combination transactions. The
distinctly different profiles of the North American and PNG
businesses have proven to be the main impediment to identifying
transactions acceptable to all parties and in the best interests of
Shareholders. Finding unique companies desirous of being linked to
both distinct businesses has proven unsuccessful. Companies to
whom association with our North American Business may be attractive
are a distinctly broader group and do not overlap with the
international companies with whom the PNG business and its risk
profile may fit well.
Board and management unanimously agree that the
separation of these two businesses will ensure that management is
dedicated to enhancing the value of each business and accessing new
pathways to transformative and accretive transactions that are
currently inaccessible.
Benefits to Shareholders
Certain of the expected benefits to Shareholders
of the Arrangement are as follows:
- The benefits of
dividing the Corporation into its distinct businesses;
- Each company
will be owned by Shareholders on a pro rata basis with reference to
the number of High Arctic Common Shares held prior to the
Arrangement;
- The Arrangement
is expected to improve the market’s identification and valuation of
each company and allow Shareholders, investors and analysts to
more accurately compare, evaluate and value each of the companies
on a stand-alone basis against appropriate peers, benchmarks and
performance criteria specific to that company;
- Each company
will have independent access to capital (equity and debt) which
management believes will result in optimal capital
allocation;
- The procedures
by which the Arrangement is to be approved, including the
requirement for approval of the Arrangement by the Court after a
hearing at which fairness to the Corporation’s securityholders
will be considered;
- The Corporation
has received the financial Fairness Opinion (defined below);
- The availability
of rights of dissent to Shareholders with respect to the
Arrangement; and
- The tax
treatment of the Arrangement is expected to be tax efficient for
Canadian tax purposes for most shareholders.
Board and Management of High Arctic and
SpinCo
The Hon. Joe Oliver has informed the Corporation
that he does not intend to stand for re-election as a director at
the Meeting and will resign on May 15, 2024. Mr. Oliver has served
as a director of High Arctic for eight years, and his intention to
resign coincides with the Arrangement and the setting of a new
strategic direction for the remaining Corporation, which he
supports.
Michael Binnion, High Arctic’s Chairman stated:
“On behalf of the Board, I would like to thank the Honorable Joe
Oliver for his dedication and commitment to High Arctic during his
tenure. Joe has played an important role in the evolution of High
Arctic including the challenges of a global pandemic and a
rebuilding of the businesses that sets the stage for a new and
independent future. We wish Joe all the very best.”
Upon completion of the Arrangement and election
or re-election by Shareholders at the Meeting, the Board of High
Arctic will consist of:
Simon Batcup (Chair)Douglas StrongMichael BinnionCraig
Nieboer
The management of High Arctic will consist
of:
Michael Maguire (Interim CEO)Lonn Bate (CFO)Trevor Barker (GM
Operations)Justin Morrical (Business Development Manager)
High Arctic is actively pursuing permanent CEO
placement options. If the Arrangement is approved, Mr. Maguire will
assume the role in an interim capacity and transition duties to a
new CEO appointed by the Board.
The management of SpinCo will consist of:
Mike Maguire (CEO)Lonn Bate (Interim CFO)Stephen Lambert
(COO)Chris Fraser (VP Strategy & Growth)Matthew Cocks (VP
Finance)
The Board of SpinCo, upon completion of the
Arrangement, will consist of:
Michael Binnion (Chair)Mike MaguireBruce Apana
Summary of the Arrangement
The Corporation and SpinCo have entered into an
arrangement agreement providing for the Arrangement (the
"Arrangement Agreement"). A copy of the Arrangement Agreement will
be filed under High Arctic's profile on SEDAR+ at www.sedarplus.ca.
Full details of the Arrangement, the Return of Capital, and the
other items to be approved by the Shareholders at the Meeting will
be included in the management information circular of High Arctic
to be mailed to Shareholders on or about May 13, 2024.
The Arrangement will require approval by a
minimum of 66 2/3% of the votes cast by High Arctic Shareholders,
voting in person or by proxy, at the Meeting. The Arrangement is
also subject to the approval of the TSX and the Court of King's
Bench of Alberta, and applicable regulatory approvals and the
satisfaction of certain other closing conditions customary for
transactions of this nature. It is anticipated that the Return of
Capital will be distributed to Shareholders on or about July 24,
2024, and the closing of the Arrangement will take place on or
about July 31, 2024, assuming that the required Shareholder, Court
and regulatory approvals have been received by such time, and
subject to the other terms and conditions set out in the
Arrangement Agreement.
Application has been made to the TSX Venture
Exchange for the listing of the SpinCo Common Shares upon
completion of the Arrangement. It is a condition of the completion
of the Arrangement that the new common shares of High Arctic and
the SpinCo Common Shares will be listed on either the Toronto Stock
Exchange or will be listed on the TSX Venture Exchange.
Lightyear Capital Inc. has provided to the
Board of Directors an opinion ("Fairness Opinion") that, as of the
date of the Fairness Opinion and based upon and subject to the
assumptions, limitations, qualifications and conditions described
therein, the consideration to be received by Shareholders
pursuant to the Arrangement was fair, from a financial point of
view, to such Shareholders.
Summary of the Return of
Capital
In July 2022 the Corporation made a strategic
decision to divest certain well servicing and snubbing assets in
Canada, to two separate purchasers, and in July 2023 the
Corporation sold its Canadian nitrogen pumping business
(collectively, the “Sale Transactions”).
As a result of receiving the cash proceeds of
the Sale Transactions, the Corporation had working capital of
approximately $62.7 million which included a cash balance of
approximately $50.4 million as at December 31, 2023. Although
the Corporation reviewed opportunities to redeploy its excess
working capital in North America and elsewhere, the High Arctic
Board has determined to seek shareholder approval for the
Arrangement and the Return of Capital.
Pursuant to the provisions of the Alberta
Business Corporations Act, the Corporation proposes to reduce the
capital account maintained by the Corporation in respect of the
High Arctic Common Shares in an amount up to $0.76 multiplied by
the number of High Arctic Common Shares issued and outstanding,
such amount to be determined by the Board. Approval of the Stated
Capital Reduction enables High Arctic to distribute the same
amount to Shareholders as a Return of Capital. High Arctic
anticipates that the aggregate amount of the return of Capital will
be a maximum of $38.2 million. The Return of Capital is expected
to be completed immediately prior to the completion of the
transactions contemplated by the Arrangement.
The Return of Capital will require approval by a
minimum of 66 2/3% of the votes cast by High Arctic shareholders,
voting in person or by proxy, at the Meeting.
Board Recommendation
The Board of Directors of High Arctic, including
the Hon. Joe Oliver, has unanimously approved the Arrangement and
the Return of Capital and has determined that the Arrangement and
the Return of Capital are in the best interests of High Arctic, and
recommends that the High Arctic shareholders vote in favour of the
Arrangement and the Return of Capital.
Other Matters to be Approved at the
Meeting
At the Meeting, provided that the Arrangement is
approved by the Shareholders, the Shareholders will also be asked
to approve the accelerated redemption of all outstanding units
under the Corporation’s deferred share unit plan, as well as an
equity incentive plan for SpinCo. Shareholders will also be asked
to approve various annual matters, including fixing the number of
directors to be elected at the meeting, election of the directors
of the Corporation, and appointment of the auditors of the
Corporation.
About High Arctic
High Arctic is an energy services provider. High
Arctic is a market leader in Papua New Guinea providing drilling
and specialized well completion services and supplies rental
equipment including rig matting, camps, material handling and
drilling support equipment. In western Canada High Arctic provides
pressure control and other oilfield equipment on a rental basis to
exploration and production companies, from its bases in Whitecourt
and Red Deer, Alberta.
For further information, please contact:
Lonn BateInterim Chief Financial
Officer1.587.318.22181.800.668.7143
High Arctic Energy Services Inc.Suite 2350, 330–5th Avenue
SWCalgary, Alberta, Canada T2P 0L4website: www.haes.ca Email:
info@haes.ca
Forward-Looking Statements
Forward-Looking Statements. Certain statements
contained in this press release may constitute forward-looking
statements. These statements relate to future events or High
Arctic's and SpinCo's future performance. All statements other than
statements of historical fact may be forward-looking statements.
Forward-looking statements are often, but not always, identified
by the use of words such as "seek", "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could", "might",
"should", "believe" and similar expressions. These statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. High Arctic
believes that the expectations reflected in those forward-looking
statements are reasonable, but no assurance can be given that
these expectations will prove to be correct and such
forward-looking statements included in this press release should
not be unduly relied upon by investors. These statements speak
only as of the date of this press release and are expressly
qualified, in their entirety, by this cautionary statement.
In particular, this press release contains
forward-looking statements, pertaining to the following: the
anticipated benefits of the Arrangement to High Arctic and its
Shareholders; the timing and anticipated receipt of required
regulatory (including stock exchange), court, and shareholder
approvals for the Arrangement; the ability of High Arctic to
satisfy the other conditions to, and to complete, the Arrangement;
the anticipated timing of the mailing of the information circular
regarding the Arrangement, the closing of the Arrangement, the
approval by the Board and the amount and payment of the Return of
Capital, and the composition of the management teams and Board of
Directors of SpinCo and post-Arrangement High Arctic.
In respect of the forward-looking statements and
information concerning the anticipated completion of the proposed
Arrangement, the anticipated timing for completion of the
Arrangement and related transactions, High Arctic has provided
them in reliance on certain assumptions that it believe are
reasonable at this time, including assumptions as to the time
required to prepare and mail shareholder meeting materials,
including the required management information circular; the
ability of the parties to receive, in a timely manner, the
necessary regulatory, court, shareholder and other third party
approvals; and the ability of the parties to satisfy, in a timely
manner, the other conditions to the closing of the Arrangement.
These dates may change for a number of reasons, including
unforeseen delays in preparing meeting material; inability to
secure necessary shareholder, regulatory, court or other third
party approvals in the time assumed or the need for additional
time to satisfy the other conditions to the completion of the
Reorganization. Accordingly, readers should not place undue
reliance on the forward-looking statements and information
contained in this news release concerning these times.
With respect to forward-looking statements
contained in this press release related to High Arctic’s business
and operations, High Arctic has made assumptions regarding, among
other things: (i) there being no significant disruptions affecting
operations, whether due to labour disruptions, supply disruptions,
damage to equipment or otherwise during the balance of 2024; (ii)
that the exchange rate between the Canadian dollar and the U.S.
dollar will be approximately consistent with current levels;
(iii) the ability of the Corporation and SpinCo to maintain
ongoing relationships with major customers and successfully market
their services to current and new customers; (iv) the ability of
High Arctic and SpinCo to successfully manage, operate, and thrive
in an environment which is facing much uncertainty; and (v) the
ability of High Arctic and SpinCo to obtain equity and debt
financing when needed on satisfactory terms.
The actual results of High Arctic and SpinCo
could differ materially from those anticipated in these
forward-looking statements as a result of risk factors that may
include, but are not limited to: volatility in the worldwide
demand for oilfield services; impact on industry activity levels
due to such factors as volatility in oil and natural gas prices and
the ability of customers to raise capital for exploration and
development; change in legislation and the regulatory environment;
changes in PNG government policy on resource development; risks
inherent in operating in foreign jurisdictions; and geohazards and
meteorological hazards associated with operating in PNG.
This forward-looking information represents High
Arctic’s views as of the date of this document and such
information should not be relied upon as representing its views as
of any date subsequent to the date of this document. High Arctic
has attempted to identify important factors that could cause
actual results, performance or achievements to vary from those
current expectations or estimates expressed or implied by the
forward-looking information. However, there may be other factors
that cause results, performance or achievements not to be as
expected or estimated and that could cause actual results,
performance or achievements to differ materially from current
expectations. There can be no assurance that forward-looking
information will prove to be accurate, as results and future events
could differ materially from those expected or estimated in such
statements. Accordingly, readers should not place undue reliance
on forward-looking information. Except as required by law, High
Arctic undertakes no obligation to publicly update or revise any
forward-looking statements.
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