~board unwillingness to engage is a result of timing and price -- IBR knows even in another month or so, additional drill results will show this bid is terrible and not in the best interests of shareholders.
~you'll notice Velvet pushes the idea that IBR isn't in a good position financially... again, wrong based on future results and bank lines, equity capital available
~laughable the Velvet bid gives a consensus multiple of EBITDA as a valuation metric. what that number is now is irrelevant...Velvet knows theyre paying for land and future potential... shareholders should vote that way as well.
~as another metric, lets roll out the comparables for land value in other acqusitions... ditchdiggers and other poster can relay specifics.. any way you slice it, get to a value over $1 per share IBR.
Velvet's press release:
- Velvet to offer $0.75 in cash per Iron Bridge common share.
- Represents a significant 58% premium to the closing price of Iron Bridge common shares on May 11, 2018, the last trading day prior to the submission of our offer letter to the Iron Bridge Board, and a 45% premium to the 20-day volume weighted average trading price for the period ended May 18, 2018.
CALGARY, Alberta, May 22, 2018 (GLOBE NEWSWIRE) -- Velvet Energy Ltd. (“Velvet” or “We” or “Us”) announced today that it intends to commence an offer (the “Offer”) to acquire all of the issued and outstanding common shares (the “Common Shares”) of Iron Bridge Resources Inc. (TSX:IBR) (“Iron Bridge”).
Under the terms of the Offer, Velvet proposes to acquire all of the issued and outstanding Common Shares of Iron Bridge for $0.75 in cash per Common Share. This represents a 58% premium to the closing price of Iron Bridge Common Shares on the TSX on May 11, 2018, the last trading day prior to Velvet submitting an offer letter to Iron Bridge’s board of directors (the “Iron Bridge Board”) on May 13, 2018, and a 45% premium to the 20-day volume weighted average trading price of Iron Bridge Common Shares on the TSX for the period ended May 18, 2018. The Offer values Iron Bridge at an enterprise value of approximately $120 million, which implies a multiple of 12.2x Iron Bridge’s 2018 consensus EBITDA.
Since the submission of our offer letter to the Iron Bridge Board on May 13, 2018, Velvet has repeatedly attempted to engage with the Iron Bridge Board and management to explore a value maximizing transaction for Iron Bridge shareholders. Iron Bridge asked Velvet to execute a confidentiality agreement with a standstill. Given Velvet’s significant industry knowledge and expertise in Iron Bridge’s area of operations, we do not require access to confidential information. Further, maintaining the ability to take our Offer directly to Iron Bridge shareholders was important given the Iron Bridge Board has refused to constructively engage with Velvet about a fully-funded all-cash transaction which provides Iron Bridge shareholders the opportunity to realize a significant premium and liquidity at a very attractive fundamental valuation.
In the face of the Iron Bridge Board denying Iron Bridge shareholders the ability to decide for themselves as to the merits of the Offer, we have decided to make the Offer directly to Iron Bridge shareholders, the owners of the company.
REASONS TO ACCEPT THE OFFER
We believe that our Offer is compelling, and represents a clearly superior alternative to the course set by the Iron Bridge Board and management, for the following reasons:
- Significant Premium to Market Price. The Offer represents a significant 58% premium to the closing price of the Iron Bridge Common Shares on the TSX on May 11, 2018, the last trading day prior to the submission of our offer letter to the Iron Bridge Board. The Offer also represents a premium of 45% to the 20-day volume weighted average trading price of the Iron Bridge Common Shares on the TSX for the period ended May 18, 2018.
- Premium Valuation for Iron Bridge. The Offer represents a 2018 EV/EBITDA multiple of 12.2x 2018 consensus EBITDA for Iron Bridge. This valuation represents a significant premium to Iron Bridge’s Montney peer group median consensus 2018 EV/EBITDA multiple of 6.6x.
- 100% Liquidity and Certainty of Value. The Offer provides 100% cash consideration for Iron Bridge Common Shares, giving Iron Bridge shareholders certainty of value and immediate liquidity in the face of volatile markets and significant uncertainty as to Iron Bridge’s ability to finance and execute its business plan.
- Fully Financed Cash Offer. Velvet’s board has approved the Offer and has arranged fully committed financing to complete the transaction.
- Iron Bridge has Insufficient Liquidity. Based on Iron Bridge’s most recent quarterly disclosure, marginal operating cash flows and heavy capital expenditures fully consumed net working capital, declining from a surplus of ~$21.7 million at December 31, 2017 to a deficit of ~$2.2 million at March 31, 2018. With a credit facility borrowing limit of only $5 million, this leaves Iron Bridge with only $2.0 million of liquidity to fund future development of its asset base.
- Iron Bridge has an Unsustainable Cost Structure. Iron Bridge’s cash expenses, adjusted for one-time cost recoveries, were $29.33/boe in the first quarter of 2018 - approximately equal to revenue of $29.99/boe resulting in marginal funds flow. Iron Bridge’s G&A expense was $9.54/boe or more than 30% of cash costs - significantly higher than their Montney peer median of $1.41/boe.
- Iron Bridge has Limited Financing Alternatives Available. With insufficient liquidity and a current cash flow outspend, Iron Bridge will need to access external sources of financing. Iron Bridge’s publicly disclosed net asset value requires over $200 million of future development capital. Raising this capital will prove challenging for Iron Bridge in today’s energy sector, where access to public equity and debt financing is limited. Velvet understands the value of Iron Bridge’s assets given its own operations in the area and the Offer represents a compelling valuation that could not be realized in the current public market environment.
- Iron Bridge has made Misguided Capital Allocation Decisions. On November 20, 2017, Iron Bridge commenced a share repurchase program. Given the capital intensity of horizontal, multi-fracturing technology, Iron Bridge’s early stage of delineation and limited capital resources, Iron Bridge should be focused on prioritizing capital to its land base.
- Iron Chain Technology Corp. is a Distraction. Cryptocurrency mining is an untested business and adds an additional layer of risk to an already volatile market environment. It also presents transparency challenges for stock valuation. Shareholder capital should be focused on developing Iron Bridge’s Elmworth Assets and associated infrastructure.
SHAREHOLDERS, THE TIME FOR ACTION IS NOW
As fiduciaries of the company, the Iron Bridge Board and management should have engaged with Velvet to pursue an attractive opportunity to unlock shareholder value.
The Iron Bridge Board’s failure to engage with Velvet has forced us to bring the Offer directly to you, the shareholders and owners of the company. However, unless the Iron Bridge Board agrees to shorten the bid period, the Offer must remain open for at least 105 days. It is within the Iron Bridge Board’s power to shorten the minimum bid period to 35 days.
There is no reason to delay shareholders’ ability to accept the Offer. In today’s capital-constrained environment, there is limited upside to holding Iron Bridge shares given the short runway the company has to pursue its growth plans. Shareholders are encouraged to contact members of the Iron Bridge Board and management team to make their views known.
Shareholders who have additional questions about the Offer or who need assistance in tendering their shares are encouraged to contact the information agent for the Offer, Kingsdale Advisors at the numbers below.
The Offer
The Offer will be made for all of the issued and outstanding Common Shares of Iron Bridge. Full details of the Offer will be included in the formal offer and take-over bid circular to be mailed to Iron Bridge shareholders. Velvet expects to formally commence the Offer and mail the offer and circular to Iron Bridge shareholders in the following days. The take-over bid circular will be filed on SEDAR at www.sedar.com.
The Offer will be subject to customary conditions including, without limitation, the deposit under the Offer of Common Shares representing at least 66 2/3% of outstanding Common Shares, receipt of all necessary regulatory approvals, and no material adverse change in Iron Bridge. The Offer will not be subject to the approval of Velvet’s shareholders and is not subject to any financing or due diligence conditions.
Under applicable Canadian securities laws, the Offer will initially be open for acceptance for a minimum of 105 days from the date of commencement, subject to the ability of Velvet to shorten the deposit period in certain circumstances, provided that the minimum deposit period can never be less than 35 days from the date of the Offer. The Offer is subject to a non-waivable condition that more than 50% of the outstanding Common Shares, excluding those Common Shares beneficially owned, or over which control or direction is exercised, by Velvet or by any person acting jointly or in concert with Velvet, shall have been validly deposited and not withdrawn. The Offer will be extended for a period of not less than 10 days after Velvet first takes up shares under the Offer, assuming the minimum bid conditions are met.
Advisors
Velvet has retained BMO Capital Markets as its exclusive financial advisor. Kingsdale Advisors is acting as strategic communications advisor and Information Agent and Depositary.