The shareholders of Pipestone Energy Corp. have voted to approve the acquisition of the company by Strathcona Resources Ltd. in an all-stock transaction valued at $8.5 billion (CAD 11.5 billion).
The acquisition is expected to close on Oct. 3, subject to receipt of a final order from the Court of King’s Bench of Alberta and the satisfaction or waiver of customary closing conditions, Pipestone said in a press release Wednesday. Strathcona will acquire all of the issued and outstanding common stock of Pipestone, after which the two companies will merge into a new corporation, continuing as Strathcona Resources Ltd.
“On behalf of the Pipestone Board, I thank our shareholders for their participation in this process and their support for this value-creating transaction,” said Pipestone Chairman Gord Ritchie.
Once completed, the merger will allow shareholders to “participate in the benefit of a much larger and more diversified producer with a well-positioned reserve base and a much longer reserve life,” Pipestone said. The merger will also “provide better access to capital and a lower cost, expanded tax protection and potential positive market appreciation,” the company added.
In an earlier statement, Pipestone strongly refuted “flawed assumptions and misleading arguments” made by Atlanta, Georgia-based GMT Capital Corp. against the transaction. “There is nothing new in GMT’s speculative arguments in its dissenting proxy circular, which focus on short-term, cherry-picked data, nor does GMT have a value enhancement plan for the stand-alone company Pipestone said.
GMT Chairman Tom Claugus, in an open letter on September 21, urged shareholders to vote against the proposed merger, saying “the exchange ratio is too low for Pipestone shareholders.”
“Since this deal was announced, I have personally spoken with CEOs of four other companies that are interested in making a bid. All of them have processing assets and production acreage near Pipestone and significantly larger operating synergies and balance sheets stronger/lower debt levels than Strathcona. I believe that if this deal were to be voted down, these companies would come out as bidders at significantly higher price levels than the Strathcona deal,” Claugus said in the letter.
“In short, we believe there is almost nothing to like about the terms of the Strathcona merger. The merger would result in a combined entity that trades at a lower valuation, is heavily overstocked, dangerously leveraged and has a poorer ESG profile,” Claugus concluded.
Pipestone refuted Claugus’ claims, saying the letter echoed “the same false, speculative and unsupported points contained in GMT’s dissident delegation circular,” which Pipestone had “thoroughly addressed and dismantled.”
“We have not received any calls from Tom Claugus, whose fund is a major shareholder with representation on our board, passing on the names of these four mystery CEOs,” Ritchie said in a separate statement. “If GMT really wants to create value for all Pipestone shareholders, why haven’t they shared these deals and why are we only hearing about them now? It makes us wonder if they exist, and what is Tom Claugus’ real agenda here ?
Commenting on GMT’s dissenting proxy circular, Institutional Shareholder Services stated: “After review, the dissenting arguments do not appear well supported and there is no clear indication as to whether a rejection of the deal would increase the value for shareholder or would lead to a lasting improvement in PIPE’s share price. As such, ISS continues to recommend that shareholders vote for the transaction.” Glass, Lewis & Co., LLC also recommended that shareholders vote in favor of the proposed deal, according to the statement.
Strathcona will be led by Adam Waterous as executive chairman, Rob Morgan as president and CEO, Connor Waterous as senior vice president and chief financial officer and Strathcona’s experienced executive team, according to the release.
The Pipestone acquisition is Strathcona’s latest in recent years. In August 2022, Strathcona completed the acquisition of Saskatchewan-based Serafina Energy Ltd., while in March 2022 Caltex Resources and Stickney Resources Ltd merged with Strathcona. In June 2021, Strathcona and Osum Oil Sand Corp. merged. Strathcona itself was a combination of Cona Resources Ltd. and Strath Resources Ltd., a merger completed in August 2020, according to the company’s website.
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