Strategic combination of highly complementary
businesses expected to unlock significant shareholder
value
CALGARY, AB, March 9, 2021 /CNW/ - SECURE Energy Services
Inc. ("SECURE") (TSX: SES) and Tervita Corporation ("Tervita")
(TSX: TEV) are pleased to announce a transaction to create a
stronger midstream infrastructure and environmental solutions
business that is expected to provide enhanced free cash flow
generation resulting from greater scale and significant annual
integration cost savings of $75
million, unlocking value for all shareholders.
The combined company will have an implied total enterprise value
of approximately $2.3 billion. Upon
completion of the transaction, SECURE and Tervita shareholders will
own approximately 52% and 48%, respectively, of the combined
company.
The companies have entered into an arrangement agreement (the
"Arrangement Agreement") to combine in an all-share
transaction pursuant to which SECURE will acquire all of the issued
and outstanding common shares of Tervita (the "Tervita Shares") on
the basis of 1.2757 common shares of SECURE (the "SECURE Shares")
for each outstanding Tervita Share (the "Transaction"). The
combined company will operate as SECURE and remain listed on the
Toronto Stock Exchange ("TSX") as TSX: SES. The combined company
will remain headquartered in Calgary,
Alberta.
Transaction Highlights
- Highly complementary midstream infrastructure asset bases and
environmental service lines provide for enhanced scale,
utilization, efficiencies, and expanded services for the combined
company's customers;
- Significant estimated annual integration cost savings of
$75 million are expected to be
realizable within 12 to 18 months after closing;
- Expected to be immediately accretive to cash flow from
operations and discretionary free cash flow per share for all
shareholders of the combined company;
- Significantly improved cost structure to serve our growing and
consolidating customer base through the full business cycle;
- Strong pro forma financial position with attractive
discretionary free cash flow generation expected to reduce debt and
help achieve the combined company's target debt to EBITDA ratio of
less than 2.5x, which is expected to be achieved within two years
of closing;
- Enhanced scale anticipated to provide greater access to capital
markets and the ability to partner with our customers to execute on
a strong pipeline of organic growth projects;
- Combines two strong corporate cultures driven by highly
talented teams with shared commitments to environmental, social and
governance ("ESG"), safety, performance, customer service and
profitability; and
- Elevates position to advance and deliver on environmental and
social sustainability initiatives for the combined company and our
customers.
Rene Amirault, Chairman,
President, and Chief Executive Officer of SECURE, stated "We are
pleased to announce the combination of these two great companies,
resulting in the creation of a larger scale midstream
infrastructure and environmental solutions business. Together, our
highly talented teams will be better positioned to serve our
customers, optimize existing infrastructure assets and operations
and to drive greater discretionary free cash flow to the bottom
line. We look forward to working with the Tervita Board of
Directors and team, and we are excited about the value creation
opportunities of this Transaction for all stakeholders."
"The merger results in the combination of complementary
midstream infrastructure asset bases and environmental service
lines, providing for enhanced scale and relevance, benefiting our
shareholders, customers, suppliers, and the communities in which we
operate," said John Cooper,
President and Chief Executive Officer of Tervita. "In SECURE, we
have a partner who is equally committed to an employee centric
culture with a focus on ESG, safety, performance and customer
value, with whom we are eager to join forces to leverage our
combined resources and strengths, which will drive a successful
integration."
Strategic Rationale
The combined company is expected to be stronger, more capable,
more efficient and more profitable than either company on its
own.
- Greater Capabilities to Serve Customers
-
- Combined complementary midstream infrastructure asset bases and
environmental service lines of SECURE and Tervita expected to
result in increased size and scale, utilization, efficiencies, and
expected enhancement of services and capabilities for the combined
company's customers.
- Greater Scale and Capital Market Relevance
-
- Creates a larger, more investable entity for all equity and
debt holders, providing greater liquidity and scale to the combined
company's investors.
- Combined market capitalization of approximately $1.0 billion and enterprise value of
approximately $2.3 billion, based on
SECURE's share price as at March 8,
2021 and the exchange ratio pursuant to the Transaction,
with pro forma annual Adjusted EBITDA of greater than $400 million, including expected annual
integration cost savings.
- Sizeable Integration Cost Savings Enhance Opportunity for
Value Creation
-
- Annual integration cost savings estimated at $75 million (representing ~22% of pro forma 2020
Adjusted EBITDA) expected to be realizable in 12 to 18 months after
closing.
- Integration cost savings consist of general and administrative
cost reductions, optimization of field, asset and operational
overhead and corporate savings.
- Immediately Accretive to All Shareholders and Strong
Discretionary Free Cash Flow
-
- Transaction expected to be immediately accretive to cash flow
from operations and discretionary free cash flow per share.
- Strong discretionary free cash flow profile of the pro forma
entity and integration cost savings realization are anticipated to
be directed to maximizing shareholder returns through debt
repayment, followed by return of shareholder capital and investment
in strategic, high-return growth projects.
- The combined company expects to maintain SECURE's quarterly
dividend of 0.75 cents ($0.0075) per share, subject to the approval of
the combined company's Board of Directors.
- Strong Balance Sheet and Financial Position
-
- Pro forma as of December 31,
2020, the combined company will be well capitalized with a
pro forma net debt to 2020 Adjusted EBITDA ratio of 3.1x, inclusive
of $75 million of annual integration
cost savings.
- In conjunction with the Transaction, SECURE has entered into a
binding agreement with ATB Financial (as administrative agent),
National Bank of Canada,
Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, and Bank
of Montreal, collectively acting
as co-lead arrangers and joint bookrunners, to provide the combined
company with committed financing by way of a $725 million three-year credit facility available
at closing of the Transaction (the "Credit Facility"). The Credit
Facility will be utilized to replace and repay SECURE's existing
first and second lien credit facilities and Tervita's first lien
credit facilities. Tervita's second lien notes will remain
outstanding and enable capital structure optimization while
maintaining adequate liquidity.
- The combined company is well positioned with the right assets
and the right people in place to respond to and capitalize upon
increasing industry activity with minimal additional
investment.
- Enhanced ESG Leadership
-
- Commitments to ESG leadership will remain core to the combined
company. Leading safety practices, strong governance, minimizing
environmental impacts, and making positive contributions in the
communities where we live and work will drive the combined
company's ESG initiatives.
- The combined company will continue to pursue the long-term
climate targets established by SECURE of reducing carbon intensity
in half by 2030 and achieving net zero emissions by 2050.
- The combined company's talented employees will drive
sustainability priorities and performance.
Select Pro Forma Financial Information(1)
Common Shares
Outstanding(2)
|
307
million
|
Market
Capitalization(3)
|
$1.0
billion
|
Net Debt
|
$1.3
billion
|
Enterprise
Value(2)(3)
|
$2.3
billion
|
2020 Adjusted EBITDA
(Including Integration Cost Savings)
|
$419
million
|
Total
Assets
|
$2.9
billion
|
Total
PP&E
|
$2.0
billion
|
|
|
(1)
|
All figures are
approximate and as at December 31, 2020 unless otherwise
noted.
|
(2)
|
Based on outstanding
shares as at March 8, 2021 and the exchange ratio pursuant to the
Transaction.
|
(3)
|
Based on SECURE's
closing share price on the TSX as at March 8, 2021.
|
- Increased size and scale of the pro forma entity is expected to
improve access to capital markets and asset coverage.
- Expect to achieve target of less than 2.5x debt to EBITDA ratio
within two years of closing, supported by integration cost savings
and a strong discretionary free cash flow profile.
- Both companies prioritizing debt repayment in 2021 before the
Transaction is expected to close.
Governance and Leadership
The combined company will be led by a proven management team
that reflects the strengths and capabilities of both organizations.
Rene Amirault will serve as Chief
Executive Officer, John Cooper will
support the transition as Chief Integration Officer, Chad Magus will serve as Chief Financial
Officer, and Allen Gransch as Chief
Operating Officer of Midstream. Additional senior leaders will be
selected from the teams at both organizations and will be
determined before the close of the Transaction.
The Board of Directors will consist of eight members, with equal
representation from the existing SECURE and Tervita Board of
Directors. Grant Billing, current
Chairman of Tervita, will be Chairman of the combined company.
Rene Amirault will also serve on the
Board of Directors of the combined company.
Transaction Terms
Under the terms of the Arrangement Agreement, the
Transaction will be structured through a plan of arrangement of
Tervita under the Business Corporations Act (Alberta).
The Transaction will require approval by at least 66⅔ percent of
holders of the Tervita Shares represented in person or by proxy at
a special meeting of Tervita shareholders to be called to consider
the Transaction (the "Tervita Meeting").
The issuance of the SECURE Shares pursuant to the Transaction
will require approval by a simple majority of SECURE Shares
represented in person or by proxy at a special meeting of SECURE
shareholders to be called to consider the issuance of SECURE Shares
pursuant to the Transaction (the "SECURE Meeting"), pursuant to the
requirements of the TSX.
In addition, the Transaction is subject to approval by the TSX
and the Alberta Court of Queen's
Bench, requisite approvals under the Competition Act
(Canada) being obtained and other
customary closing conditions being met, as well as the entering
into of the Credit Facility by SECURE and its syndicate of lenders.
The effectiveness of the Credit Facility will itself be subject to
certain financial covenants, liquidity criteria and customary
conditions being met, as well as Tervita obtaining from the holders
of its outstanding US$500 million
aggregate principal amount of senior second lien secured notes due
2025 (the "Tervita Notes") certain consents and approvals such as
the waiver of the change of control offer required to be made for
the Tervita Notes in connection with the change of control of
Tervita resulting from the Transaction, together with certain other
amendments to the indenture governing the Tervita Notes (the
"Tervita Noteholder Consent").
The Arrangement Agreement includes customary provisions relating
to non-solicitation and a fiduciary-out in the event a financially
superior offer is received by either party, subject to the other
party's right to match such superior offer. The Arrangement
Agreement also provides for mutual non-completion fees in the event
that the Transaction is not completed or is terminated by either
party in certain circumstances.
Further details regarding the Transaction will be contained in a
joint management information circular (the "Information Circular")
to be sent to SECURE and Tervita shareholders in connection with
the SECURE Meeting and the Tervita Meeting. The Information
Circular is expected to be mailed to shareholders within the next
six to eight weeks with the meetings of the respective shareholders
to be held thereafter.
All SECURE and Tervita shareholders are urged to read the
Information Circular once available as it will contain additional
important information concerning the Transaction.
Support for the Transaction
The Board of Directors of each of SECURE and Tervita have
unanimously approved the Arrangement Agreement and support the
Transaction.
All of the directors and officers of SECURE, collectively
holding approximately 5% of the SECURE Shares, have
entered into support agreements with SECURE pursuant to which they
have agreed to vote their respective SECURE Shares in favour of the
Transaction at the SECURE Meeting.
All of the directors and officers of Tervita, as well as Solus
Alternative Asset Management LP ("Solus"), collectively holding
approximately 43% of the total Tervita Shares, have entered into
support agreements with Tervita pursuant to which they have agreed
to, among other things, vote their respective Tervita Shares in
favour of the Transaction at the Tervita Meeting. In addition,
Solus has agreed to, with respect to the portion of Tervita Notes
held by it, consent to or vote in favour of the Tervita Noteholder
Consent.
In addition to the support agreement, SECURE and Solus have
entered into a standstill agreement, pursuant to which Solus will
be subject to certain voting requirements, as well as certain
standstill restrictions, each taking effect at closing of the
Transaction. Solus will also be subject to certain transfer
restrictions for a nine-month period following closing of the
Transaction, provided that Solus may sell up to 50%, 75% and 100%
of its holdings of the combined company shares on the three-, six-
and nine- month anniversary of closing of the Transaction,
respectively. Solus is also permitted to sell up to 100% of its
holdings of the combined company shares in one or more privately
negotiated transactions during the nine-month period, provided that
no third party would hold 10% or more of the combined company
shares as a result of such sale.
In addition, all shareholders holding 10% or more of the
combined company shares at closing of the Transaction, including
Solus, will be provided with customary pre-emptive and registration
rights upon request.
Advisors
Peters & Co. Limited and BMO Capital Markets are acting as
financial advisors to SECURE. Each of Peters & Co. Limited and
BMO Capital Markets has provided a verbal opinion to SECURE's Board
of Directors to the effect that the exchange ratio under the
arrangement is fair, from a financial point of view, to SECURE and
is subject to the assumptions made as well as the limitations and
qualifications, which will be included in the written opinion of
each of Peters & Co. Limited and BMO Capital Markets.
Bennett Jones LLP and Blake, Cassels & Graydon LLP
(Competition) are acting as SECURE's legal advisors.
CIBC Capital Markets and TD Securities Inc. are acting as
financial advisors to Tervita. TD Securities Inc. has provided a
verbal opinion to Tervita's Board of Directors that the exchange
ratio under the arrangement is fair, from a financial point of
view, to the Tervita shareholders and is subject to the assumptions
made, as well as the limitations and qualifications, which will be
included in the written opinion of TD Securities Inc.
Norton Rose Fulbright Canada LLP is acting as Tervita's legal
advisors.
Conference Call
SECURE and Tervita will host a conference call today,
March 9, 2021, starting at
6:30 am MT (8:30 am ET). To
participate please dial:
- Toll Free North America: 1-888-664-6383
- Toronto (local):
416-764-8650
- Calgary (local):
587-880-2171
- Confirmation #: 87670039
About SECURE
SECURE is a publicly traded energy business listed on the TSX
providing industry leading customer solutions to upstream oil and
natural gas companies operating in western Canada and certain regions in the United States through its network of
midstream processing and storage facilities, crude oil and water
pipelines, and crude by rail terminals located throughout key
resource plays in western Canada,
North Dakota and Oklahoma. SECURE's core midstream
infrastructure operations generate cash flows from oil production
processing and disposal, produced water disposal, and crude oil
storage, logistics, and marketing. SECURE also provides
comprehensive environmental and fluid management for landfill
disposal, onsite abandonment, remediation and reclamation,
drilling, completion and production operations for oil and gas
producers in western Canada.
SECURE trades on the TSX as SES. For more information, visit
www.secure-energy.com.
About Tervita
Tervita is an environmentally-focused waste service provider
in Canada, providing a broad and integrated array of services
and environmental management solutions for customers in the energy,
industrial, and natural resource sectors, predominantly
in Western Canada. For over 40 years, Tervita has been focused
on delivering safe and efficient solutions through all phases of a
project while minimizing impact, maximizing returns™. Tervita's
dedicated and experienced employees are trusted sustainability
partners to our clients. Safety is our top priority: it
influences our actions and shapes our culture. Tervita trades
on the TSX as TEV. For more information,
visit www.tervita.com.
Advisories
Basis of Presentation
All financial figures and information have been prepared in
Canadian dollars (which includes references to "$"), except where
another currency has been indicated, and in accordance with
International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board.
Non-GAAP Measures and Operational Definitions
Certain financial measures in this news release do not have a
standardized meaning as prescribed by generally accepted accounting
principles in Canada, which
includes International Financial Reporting Standards. These
supplementary measures include discretionary free cash flow and
discretionary free cash flow per share, Adjusted EBITDA, and net
debt. These non-GAAP measures may not be comparable to similar
measures presented by other issuers. These measures have been
described and presented in order to provide shareholders, potential
investors and analysts with additional measures for analyzing the
Transaction. This additional information should not be considered
in isolation or as a substitute for measures prepared in accordance
with IFRS.
Discretionary free cash flow is a non-GAAP measure defined as
cash flows from operating activities, adjusted for changes in
non–cash working capital, sustaining capital expenditures, and
lease payments. Additional items that are unusual, non–recurring,
or non–operating in nature may be deducted or included in this
calculation. Management of SECURE and Tervita believe discretionary
free cash flow is a useful supplemental measure to assess the level
of cash flow generated from ongoing operations and the adequacy of
internally generated cash flow to manage debt levels, invest in the
growth and expansion of the business, or return capital to
shareholders.
Adjusted EBITDA is a non-GAAP measure defined as net earnings or
loss before finance costs, taxes, depreciation, depletion,
amortization, non–cash impairments or impairment reversals on
non–current assets, unrealized gains or losses on mark to market
commodity transactions, equity-settled share–based compensation,
other income/expenses, and certain items that are considered
non-recurring in nature, including restructuring costs and
transaction costs. Management of SECURE and Tervita believe that
Adjusted EBITDA is a useful supplemental measure to evaluate the
results of the combined company's principal business activities
prior to consideration of how those activities are financed and the
impacts of foreign exchange, taxation, depreciation, depletion and
amortization, and other non-cash charges that add volatility to
financial results (such as impairment expenses, share-based
compensation, and other transactions that are non-recurring in
nature).
Net-debt is a non-GAAP measure defined as funds drawn on first
and second lien credit facilities, the principal amount of the
Tervita Notes (in the case of Tervita), derivative liabilities
associated with the Tervita Notes (in the case of Tervita), lease
liabilities, including onerous lease contracts, net of cash and
cash equivalents. Net debt is a commonly used non-GAAP measures to
assess overall indebtedness and capital structure.
Forward-Looking Statements
This news release contains "forward-looking statements" and/or
"forward-looking information" within the meaning of applicable
securities laws (collectively referred to as "forward-looking
statements"). When used in this document, the words "achieve",
"advance", "anticipate", "commit", "deliver", "drive", "enhance",
"execute", "expect", "focus", "integrate", "opportunity",
"optimize", "plan", "position", "priority", "realize", "reach",
"result", "strategy", "target" and "will", and similar expressions,
as they relate to SECURE, Tervita or the combined company, or their
respective management, are intended to identify forward-looking
statements. Forward-looking statements included or implied herein
may include: expectations with respect to the business, financial
prospects and future opportunities for the combined company,
including its ability to increase profitability and market
relevance; the combined company's access to capital markets and the
resulting effect on its future growth and acquisition plans; the
complementary nature of the combined company's asset base and
environmental service lines, and the ability to enhance scale,
increase utilization, efficiencies and geographic coverage, and
consolidate SECURE's and Tervita's customer bases as a result
thereof; the combined company's expected discretionary free cash
flow and discretionary free cash flow per share; expected returns
for the combined company's investors; increased trading liquidity
of the combined company's shares and publicly traded debt; the
combined company's access to capital; expected market
capitalization, enterprise value and annual Adjusted EBITDA of the
combined company; expected annual integration cost savings of the
combined company, including from operational efficiencies,
optimization of overhead and corporate savings, and the timing
thereof; debt repayment and return of capital plans, and
expectations that they will be funded from internally generated
cash flows; the ability to achieve the combined company' target
debt to EBITDA ratio of less than 2.5x; future capital investment
plans and the expected returns therefrom; pro forma financial and
operational information; the capitalization of the combined
company; the expected terms of the Credit Facility, conditions
thereto and the use of proceeds therefrom; the positioning of the
combined company and its ability to respond to increased industry
activity; long-term environmental objectives, including a 50%
reduction in carbon intensity by 2030 and reaching net zero
emissions by 2050; the pro forma equity ownership of the combined
company; SECURE's ability to issue securities pursuant to the
Transaction; the combined company's dividend plans following
closing of the Transaction; the composition of the combined
company's Board of Directors and management following closing of
the Transaction; anticipated closing conditions and regulatory
approvals required pursuant to the Transaction; future ESG goals;
the combined company's capital structure, including expected
financial ratios; the diversity and credit worthiness of the
combined company's expected customer base; the meetings of each of
SECURE's and Tervita's shareholders, the Information Circular sent
in connection therewith and the expected mailing date thereof; and
the timing and completion of the Transaction, including the
expected closing date of the Transaction.
Forward-looking statements are based upon, among other things,
factors, expectations and assumptions that SECURE and Tervita have
made as at the date of this news release regarding, among other
things: the satisfaction of the conditions to closing of the
Transaction in a timely manner, including the entering into of the
Credit Facility and the receipt of all necessary approvals under
the Competition Act (Canada) on terms acceptable to SECURE and
Tervita; the satisfaction of the conditions to entering into the
Credit Facility, including the receipt of all required consents
from holders of Tervita's outstanding notes on terms acceptable to
SECURE and Tervita; the combined company's ability to successfully
integrate the businesses of SECURE and Tervita; sources of funding
that each of SECURE and Tervita have relied upon in the past
continue to be available to the combined company on terms favorable
to the combined company; future acquisition and sustaining costs
will not significantly increase from past acquisition and
sustaining costs and the combined company will have access to
sufficient capital to pursue future development plans; the
impact of COVID-19 and government responses related thereto; the
impact of lower global energy pricing on oil and gas industry
exploration and development activity levels and production volumes
(including as a result of demand and supply shifts caused by
COVID-19 and the actions of OPEC and non-OPEC countries); that
counterparties comply with contracts in a timely manner; that
prevailing regulatory, tax and environmental laws and regulations
apply; increases to the combined company's share price and market
capitalization over the long term; the ability of the combined
company to repay debt and return capital to shareholders; the
combined company's ability to obtain and retain qualified staff and
equipment in a timely and cost-efficient manner; and other risks
and uncertainties described from time to time in filings made by
SECURE and Tervita with securities regulatory authorities. Each of
SECURE and Tervita believe that the factors, expectations and
assumptions reflected in the forward-looking statements are
reasonable; however, no assurances can be given that these factors,
expectations and assumptions will prove to be correct.
Forward-looking statements involve significant known and unknown
risks and uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate
indications of whether such results will be achieved. Readers are
cautioned not to place undue reliance on these statements as a
number of factors could cause actual results to differ materially
from the results discussed in these forward-looking statements,
including but not limited to: the completion and the timing of the
Transaction; the ability of SECURE and Tervita to receive, in a
timely manner, the necessary regulatory, court, shareholder,
noteholder, lender, stock exchange and other third-party approvals
and to satisfy the other conditions to the closing of the
Transaction; the ability to satisfy the conditions to the Credit
Facility becoming effective; interloper risk; the ability to
complete the Transaction on the terms contemplated by SECURE and
Tervita or at all; the ability of the combined company to realize
the anticipated benefits of, and synergies and savings from, the
Transaction and the timing thereof; consequences of not completing
the Transaction, including the volatility of the share prices of
SECURE and Tervita, negative reactions from the investment
community and the required payment of certain costs related to the
Transaction; actions taken by government entities or others seeking
to prevent or alter the terms of the Transaction; potential
undisclosed liabilities unidentified during the due diligence
process; the accuracy of the pro forma financial information of the
combined company; the interpretation of the Transaction by tax
authorities; the success of business integration; the focus of
management's time and attention on the Transaction and other
disruptions arising from the Transaction; the ability to maintain
desirable financial ratios; the ability to access various sources
of debt and equity capital, generally, and on acceptable terms; the
ability to utilize tax losses in the future; the ability to
maintain relationships with partners and to successfully manage and
operate integrated businesses; risks associated with technology and
equipment, including potential cyberattacks; the occurrence of
unexpected events such as pandemics, war, terrorist threats and the
instability resulting therefrom; risks associated with existing and
potential future lawsuits, shareholder proposals and regulatory
actions; and those factors referred to under the heading "Risk
Factors" in each of SECURE's and Tervita's annual information form
for the year ended December 31, 2020
located on SEDAR. In addition, the effects and impacts of the
COVID-19 outbreak, the rapid decline in global energy prices and
the length of time to significantly reduce the global threat of
COVID-19 on SECURE's, Tervita's and the combined company's
respective businesses, the global economy and markets are unknown
and cannot be reasonably be estimated at this time and could cause
SECURE's, Tervita's or the combined company's actual results to
differ materially from the forward-looking statements contained in
this news release.
Although forward-looking statements contained in this news
release are based upon what each of SECURE and Tervita believe are
reasonable assumptions, SECURE and Tervita cannot assure investors
that actual results will be consistent with these forward-looking
statements. The forward-looking statements in this news release are
expressly qualified by this cautionary statement. Unless otherwise
required by law, SECURE and Tervita do not intend, or assume any
obligation, to update these forward-looking statements.
SOURCE SECURE Energy Services Inc.