RE:RE:RE:Any clue?Three days ago you query what is going on with BNE’s bank line date being imminent; and imply that this is somehow “fishy”; then “Surprise!”; although OBE has not seen fit to keep its own shareholders aware that it too is under review, today you seem to feel that OBE’s also going down to the wire, to get a three-month punt, is somehow different?
And speaking of clues; as there has been no press release (or mention; let alone informed discussion, on the OBE board) about the OBE release on 23 Oct of its info circular for a special shareholder meeting seeking shareholder approval for what management proposes, please feel free to pontificate on these:
- the basis for the offer:
“The number of Common Shares issued is based on the estimated number of Bonterra Shares outstanding (undiluted) multiplied by the 2.00 exchange ratio established in the Offer and Circular. The total value of the consideration will change based on fluctuations in the price of the Common Shares and the number of Bonterra Shares outstanding upon completion of the transactions contemplated by the Offer and Circular. For illustrative purposes only, the closing price of the Bonterra Shares on the TSX on September 18, 2020, the last trading day prior to the announcement of the Offer, was $1.22 and the closing price of the Common Shares on the TSX on September 18, 2020, the last trading day prior to the announcement of the Offer, was $0.57.”
Comment: Six weeks later the corresponding market prices are $1.23 for Bonterra and $0.41 for Obsidian; indicating that a 3.00 exchange ratio might be a more realistic basis for further negotiation. This would, of course, turn the deal into a reverse takeover; not, something that OBE would contemplate nor, I think, that there are any terms that would see Bonterra having an interest in combining with Obsidian with its current situation, or at the present time. - The resolution that OBE management proposes for its special shareholder meeting:
“BE IT RESOLVED THAT: 1. the issuance of up to an aggregate of 72,282,992 common shares (“
Common Shares”) of Obsidian Energy Ltd. (the “
Corporation”) to the holders (“
Bonterra Shareholders”) of common shares (“
Bonterra Shares”) of Bonterra Energy Corp. in connection with the offer (the “
Offer”), dated September 21, 2020, by the Corporation to Bonterra Shareholders to purchase all of the Bonterra Shares, as such Offer may be amended or varied by the Corporation, in its sole discretion, without further notice to, or approval of, the holders (the “
Shareholders”) of Common Shares of the Corporation, be and is hereby authorized and approved;
2. any one officer or director of the Corporation be and is hereby authorized and directed, for and on behalf of the Corporation, to do all such further acts and things and to execute and deliver (whether under corporate seal or otherwise) or sign and file (as the case may be) all such further agreements, instruments, certificates, notices, acceptances and other documents (including any documents required under applicable laws or regulatory policies), as such officer or director may consider necessary or advisable having regard to the foregoing paragraph of this resolution; and
3. notwithstanding that this resolution has been duly passed by the Shareholders, the Board of Directors of the Corporation may, in its sole discretion, revoke this resolution, in whole or in part, without any further approval of the Shareholders.”
Comment: So, if the merger were to go through then fails, management has its rear end covered; oh, and at para 3 it doesn’t matter anyway… This example of how Obsidian does business (and the last AGM is just as illuminating) is worth the time of Bonterra shareholders who may still be contemplating their options to review (and I am glad I am not a Obsidian shareholder): https://obsidian-media-library.s3.ca-central-1.amazonaws.com/obsidian-energy/corporate-website/current/wp-content/uploads/2020/10/23111015/2020-Special-Meeting-Information-Circular-FINAL.pdf - One of the many items in the three pages of “Risk Factors”:
“The Offer has been made with the expectation that its successful completion will result in certain synergies and costs savings. These anticipated benefits will depend in part on whether the operations of Bonterra and the Corporation can be integrated in an efficient and effective manner and the timing and manner of completion of a Compulsory Acquisition or Subsequent Acquisition Transaction, if any. The integration of the two companies may present challenges to management of the Corporation, and the Corporation may encounter unanticipated delays, liabilities and costs. If the Corporation does not acquire at least 66 2/3% of the Bonterra Shares and cannot or does not complete a Compulsory Acquisition or Subsequent Acquisition Transaction, it will not be able to fully and efficiently integrate Bonterra into its business. There can be no assurance that the operational or other synergies that the Corporation anticipates realizing in the combined entity will be ultimately realized, or that the integration of the two companies’ operations will be timely or effectively accomplished, or will ultimately result in cost reductions.”
Comment: The house of cards this offer is built on has a puzzling mountain of conditions and off-ramps, any of which could derail the proposal or turn it into a financial nightmare. But right at the get-go Bonterra already has more than one third of its shareholders committed to support management. So, what is left to discuss? That is a serious question; but put some meat on the table, as the arm waving so far is not going anywhere. For example: - Why would BNE shareholders want to back into paying to support OBE’s legacy properties (outside the Cardium)? - What is the basis for the round number claims of synergies and cost savings that OBE management foresees? How are these achieved without further investment to effect the changes? What is the source of funds to achieve these? It is one thing to state baldly that, absent a desire to negotiate, OBE refused to show these to Bonterra’s managment. But having chosen to appeal directly to Bonterra’s shareholders, they need to show their work. - The comparison of AROs is sketchy and OBE seems to have depreciated is own way in excess of those it ascribes to BNE. - Likewise reserves. BNE would add substantially more potential value to a deal and this does not seem to be acknowledged. - Operational efficiencies. OBE claims some very recent improvements but we would need to see at least a few more quarters to see how real these are and if they can translate into positive cash flow (something even OBE does not yet claim). On a historical basis BNE runs an exponentially tighter ship. How does OBE’s plan not destroy the latter while, hopefully, continuing to enhancing the former? - OBE management is on record as not wanting to run the new company, nor wanting any part of BNE’s management. Who then will be in charge? Why would any BNE shareholder want to buy into this, sight unseen, given the legacy of Penn West and Obsidian’s turmoil; controlled entirely by whoever controls Obsidian?