from RBC Longview stock to Surge following takeover bid
Our view: Longview has agreed to be acquired by Surge Energy (TSX:SGY) by way of a share exchange valued at $5.99/share based on the closing price of Surge. We view the transaction positively for Longview shareholders from both a valuation and strategic perspective and we
expect the transaction to close as proposed in June 2014.
Key points:
Recommendation to accept; target unchanged. In our opinion, while another offer is possible before the expected June closing date, it seems unlikely given Surge's 19.8% share ownership of Longview, the lock-up arrangement with Longview's Board of Directors, and the break-fee. We
maintain our $6.00 price target based on a 0.6x P/NAV ratio as well as based on the 0.975 share exchange bid made by Surge Energy.
Transaction value reaches RBC price target. Longview's Board of Directors has accepted a plan of arrangement by which Longview shareholders will receive 0.975 shares of Surge Energy Inc. (TSX; SGY) for each share held of Longview. This exchange ratio represents a value of $5.99/share of Longview based on the closing price of Surge and matches our $6.00 price
target on the stock (Street price targets ranged from $5.75 to $6.25/share). This valuation represents a 9% premium to the closing price of Longview on March 31, but more representatively it is a 35% premium to the closing price of Longview on February 7, the day before the initial non-binding offer by Surge was announced (see Exhibit 2). In addition, all of Longview's $155 mm of debt will be assumed by Surge for a total transaction value of $429 mm.