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.