Aspenleaf moves on from Arcan and set to acquire Coral Hill

Four months ago, Aspenleaf Energy — a relatively new portfolio company set up by ARC Financial Corp. and Ontario Teachers’ Pension Plan and run by seasoned oil industry executives – said it would “move on” if its plans to acquire Arcan Resources were rebuffed.

“For us this is fish or cut bait time,” Bryan Gould, Aspenleaf’s chief executive said in an interview with the Financial Post, prior to the late August meeting. “We put forth our best foot. It’s orderly. It’s balanced. And it maximizes value, we think. If the owners of the company see it otherwise, we will move on.”

Sure enough, when Aspenleaf’s $325 million offer – to acquire the company via the purchase of two classes of convertible debentures at a discount to their maturity value and and offer to give shareholders a small stake in one of Arcan’s projects – was rejected, Aspenleaf moved on.

And Arcan was then left to its own devices to “develop a good business and see if there is another transaction that we can do to keep adding value,” company president Douglas Penner said.

This week, we were told where Aspenleaf, whose mission is to acquire and exploit light oil and liquids-rich gas assets, had moved to. Calgary-based Coral Hill Energy Ltd. announced it entered into an agreement whereby Aspenleaf will acquire all its shares for a combination of cash and stock. Based on $2.80 per share, the deal to purchase the privately held Coral Hill is valued at about $240 million. Coral Hill was formed in 2009.

The deal seems assured of success given that holders of 40% of Coral Hill’s shares including the stake held by an institutional owner have agreed to accept Aspenleaf’s offer. As well Coral Hill’s board has determined that the offer is in the best interests of its shareholders.

It’s not immediately clear how Aspenleaf will finance the acquisition that will be put to Coral Hill’s shareholders early in the new year. It’s understood that Aspenleaf will fund the purchase with equity provided by its key backers.

Reached Tuesday, Aspenleaf’s Gould said, “we told our investors that we were looking out for quality assets and we found them. And we have no ill will towards Arcan.”

* * *

Meanwhile back at Arcan Resources, things aren’t progressing as well. The shares trade in the $0.06 range while its two classes of convertible debentures trade in the mid-$30 area.

That means that the debentures – which were issued with a 6.25% and 6.50% coupon – are yielding 40 plus percent. At those prices, the debentures are trading about $40 below what they were when the Aspenleaf offer was being considered. Both classes of debentures – which mature in 2016 and 2018 — recently traded at levels not seen in a year.

For the third quarter, Arcan reported a slight profit ($0.05 a share) but an overall loss for the first nine months. Arcan reported that it had cut expenses and had paid down its debt.

In that late November filing, Arcan noted that its credit facility was recently revised to $170 million from $180 million. “The credit facility matures on May 28, 2015, unless Arcan and its lenders agree to an amendment, renewal or extension,” it said.

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Watch out, CAA: New roadside assistance apps seeking to ‘revolutionize’ towing industry

Tow-truck drivers snarled traffic around Queen’s Park in Toronto on Tuesday to protest new provincial regulations, but another, potentially more disruptive force is poised to hit the industry: tech startups.

Towing may not be the first business that jumps to mind when one thinks of innovative technology, but new apps on both sides of the border are taking aim at roadside assistance, giving customers more choice and potentially threatening traditional motor clubs like the Canadian Automobile Association.

“We’re big believers that the on-demand economy is going to revolutionize every service industry in North America,” said Chris Spanos, CEO of towing app Urgent.ly. “We think roadside assistance is ripe and ready for that revolution.”

Washington, D.C.-based Urgent.ly — often referred to as the Uber of roadside assistance — connects stranded motorists with the nearest tow-truck driver through its mobile app. Using GPS and a partnership with MapQuest, it allows customers to pinpoint their exact location and see how far away help is.

The company, which was founded in 2013 by a group of former AOL executives, plans to enter Canada in the first half of 2015 with a trial run in Toronto, Mr. Spanos said. The app has already raised US$2-million and, while it doesn’t disclose its financial results, Mr. Spanos said it has “engaged many thousands of customers” in the U.S., where the roadside assistance industry is estimated to be worth US$10-billion annually.

Unlike automobile clubs, which collect an annual membership fee, Urgent.ly charges flat rates, keeping approximately 25% for itself and giving the rest to the towing company.

“The pay-on-demand model, as we gain traction and that gains traction, will become a serious threat to the legacy subscription model,” Mr. Spanos said.

But Doug Nelson, executive director of the Provincial Towing Association of Ontario, said he’s worried that startups like Urgent.ly will undercut the towing companies.

“I’m not sure it would be well accepted, simply because there’s a tendency for these people to negotiate less than retail rates,” he said.

Besides, tow-truck drivers in Ontario are preoccupied with new regulations — the source of Tuesday’s protests — that Mr. Nelson said could hurt customer service and increase the cost of towing by restricting the number of hours drivers can work, among other things.

Urgent.ly isn’t the only app that’s aiming to disrupt the Canadian towing scene. A new startup called Rapitow launched in Ontario earlier this month. Unlike Urgent.ly, it charges a membership fee — $9 a month for up to four tows a year — but it makes use of similar technology.

As is the case with many startups, Rapitow stemmed from a nasty personal experience.

“I was on my way home one day and I had a problem with my car out of the blue,” said Rapitow founder Waheed Subhani.

“I waited an hour and 20 minutes for a tow truck to come pick me up, and as I was being towed away, I saw a tow truck less than a kilometer away. I thought to myself as we passed him, ‘If he knew I was there, I would have waited five minutes.’”

This gave Mr. Subhani the idea to use GPS to connect stranded drivers with the nearest tow truck instead of the typical call-centre model used by motor clubs like the CAA.

But CAA spokesman Jeff Walker said he’s not worried about new apps like Rapitow and Urgent.ly.

The CAA grows its membership base by approximately 2% a year and its renewal rate is close to 90%, he said, adding that members get additional benefits including discounts on gas, hotel rooms and even electronics.

“We think that our value proposition is very strong, and that our technology is actually comparable to some of the things they’re talking about,” Mr. Walker said. “We feel confident we’re going to be just fine.”

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