Southern Pacific Resource Corp STPJF

RE:RE:RE:Strategic Review

[Eyeinvestor]

The company was fairly clear in January that the deadline for the end of the strategic review was May. Since then they raised the term debt which gives them a longer runway.
BUT....the strategic review and sale process started in December. Six months is a long time for a transaction with a professed willing seller . Last month the company sent a strong signal that a sale was imminent by suspending all capex (even though it had just raised the money for the capex and is paying a fortune in interest each week that it delays capex) in light of the strategic review. There appears to have been a delay.
Three possible scenarios occur to me:
1. They are dickering on price. The buyer will just be looking at the total consideration that they have to pay including the debt. The seller (STP) is represented by people who only care about the price they receive for the equity. The Board....Lutes... Sageview all own equity and no debt. There is a lot of debt, and buyer and seller do not have to be very far apart on the total price to have huge swings on what that implies for the stub price on the equity.
For example if the sale price of STP is $800 million (a number eye get to by taking 0.8 X STP's 1P10 reserves +assumed remaining cash of approx. $70 million) then the price per share after repaying debt is 54 cents. If the buyer is looking to pay merely 10% less than that (720Million) then the resulting share price is 35 cents (ie 35% less). Conversely, if Management can get a price of $987 million (based on flowing + non-producing) then the share price jumps to $1.02. There have been various smoke signals from the equity stake holders that they would like 70 cents. Eye would be more than content with 50 cents.......eye just hope management are not being greedy. Please don't let the buyer walk away. 2. They have two parties bidding. This always extends the process, usually in a good way. We know that at least one bid was for the whole company (from the suspension of capex on Senlac). If there is another bid just for a working interest in McKay then management will be conflicted because in one scenario they keep their jobs, in the other, they lose them. The bidding has got complicated and the deal is complex involving bankers and creditors. Due to the leveraged impact of the overall price on the remnant price for the equity, management could be trying to negotiate a complex combination of cap restructure and equity infusion....thus creating a higher value for the equity. Ugh! I hope we don't have a complex deal...but its possible given the players.