Tuscany Int'l to acquire M&P subsidiary Caroil SASTuscany Int'l to acquire M&P subsidiary Caroil SAS
TickerSymbol: C:TID
Tuscany Int'l to acquire M&P subsidiary Caroil SAS
Tuscany International Drilling Inc (C:TID)
Shares Issued266,244,053
Last Close 6/20/2011 $1.06
Monday June 20 2011 - NewsRelease
Mr. Walter Dawson reports
TUSCANY INTERNATIONAL DRILLING INC. ANNOUNCES AGREEMENT TOACQUIRE CAROIL SAS CREATING A LEADING EMERGING MARKET DRILLING COMPANY ACTIVE INLATIN AMERICA AND AFRICA
Tuscany International Drilling Inc. and Etablissements Maurel& Prom (M&P), a French exploration and production company, have enteredinto a definitive agreement whereby Tuscany's wholly owned subsidiary TuscanyRig Leasing S.A. will acquire all of the issued and outstanding shares of CaroilSAS, the drilling and workover subsidiary of M&P.
All figures contained herein are in United States dollarsunless otherwise noted. Canadian currency has been converted at $1.02:$1(U.S.).
The purchase price will be paid by Tuscany, on behalf of thebuyer, by the delivery of $120-million in cash, 82.5 million common shares ofTuscany and 27.5 million zero-cost, non-transferable, non-voting common sharepurchase warrants which are further described below. The purchase price for theacquisition was negotiated based on an agreed-upon share price of $1.53 perTuscany share to be issued to M&P which was not subject to increase ordecrease as a result of the market price of the Tuscany shares during the courseof negotiations with M&P. The current enterprise value of Caroil based onthe closing price for Tuscany shares on the Toronto Stock Exchange on Monday,June 20, 2011, is approximately $202-million (prior to transaction costs). Atclosing of the acquisition, Caroil will be required to have $37-million inworking capital and will have no third party debt.
Acquisition highlights
- Acquisition at approximately 4.2 times EV/EBITDA on a current run rate without growth;
- Acquisition is anticipated to be over 30 per cent accretive to cash flow per share;
- Acquisition is anticipated to be over 15 per cent accretive on EV/EBITDA;
- Doubles Tuscany's revenue and EBITDA on current run rate;
- Accretive to average day and utilization rates;
- Expansion of Tuscany's fleet in its existing core area of Colombia;
- Expansion into new core areas with established operations and long-term contracts;
- Established management in new core area and strengthening of existing team;
- Well-established relationships with investment grade customers;
- Abundant growth opportunities in Africa.
"This acquisition expands our existing operation in SouthAmerica and adds an up-and-running African component establishing Tuscany as aleading emerging market drilling contractor," stated Walter Dawson, chairman andchief executive officer of Tuscany. "Upon closing this acquisition, there willbe a focus on attaining operational excellence optimizing our margins andutilization within the entire fleet," added Reg Greenslade, president ofTuscany.
Senior credit facility
Tuscany has concurrently entered into a commitment letterwith Credit Suisse relating to a $220-million senior secured guaranteed termloan and revolving credit facility. The new facility will refinance an existingterm loan facility with Credit Suisse (and a group of other lenders), underwhich $80-million is currently drawn, and will extend the term by one year to2016. Credit Suisse's commitment to finance the new facility is subject tocustomary terms and conditions including the entering into of definitivedocuments.
Key management and employees of Caroil's Colombia, Paris andAfrica operations are anticipated to be retained by Tuscany and will form anintegral part of the combined entity.
SUMMARY OF CAROIL RIG FLEET
Rig Owned/ Drilling/
# managed workover Manufacturer Vintage HP Country
1 Owned Drilling Cooper 2004 1,500 electrical Colombia
2 Owned Drilling OIME 1981/2007(i) 1,200 mechanical Congo
3 Owned Drilling OIME 1981 1,200 mechanical Congo
4 Owned Drilling IDECO 1985 900 mechanical Gabon
5 Owned Drilling CEMSCO 1979/2011(i) 1,500 mechanical Congo
6 Owned Drilling OIME 1983 1,200 mechanical Tanzania
7 Owned Drilling Gardner Denver 1982 1,500 mechanical Congo
8 Owned Drilling IDECO 2006 1,500 electrical Colombia
9 Owned Workover Massarenti 1984 250 mechanical Gabon
11 Owned Drilling UPET 2007 1,000 mechanical Gabon
12 Owned Drilling National 110 1982/2007(i) 1,500 electrical Colombia
Dreco
14 Owned Drilling National 1978/2007(i) 2,000 electrical Cameroon
Oilwell
15 Owned Drilling DSI 2007 1,500 electrical Colombia
16 Owned Drilling DSI 2007 1,500 electrical Colombia
WO Managed Workover Congo
Notes
(i) Indicates year of major refurbishment.
Caroil has a strong history of financial performance and highutilization rates. Currently, 11 Caroil rigs are under contract earning revenue,two are under letter of intent and two are under negotiations with existingcustomers. In 2009, Caroil generated EBITDA of $63-million on revenue of$194-million with 90-per-cent average utilization. In 2010, Caroil generatedEBITDA of $58-million on revenue of $188-million with 94-per-cent averageutilization. During 2010, as long-term contracts ended, a number of Caroil'srigs were repaired and upgraded in preparation for new contracts. Withoutfactoring in any potential growth opportunities, Tuscany anticipates the Caroilfleet can generate an annualized EBITDA of $48-million on revenue ofapproximately $175-million based on an average utilization of 90 per cent andnon-direct general and administrative costs of $8-million.
Pro forma information
After closing of the acquisition, Tuscany will haveapproximately 376 million Tuscany shares outstanding (including shares issuablepursuant to the warrants), approximately 10 million options outstanding with aweighted average exercise price of $1.45 and approximately 30 million sharepurchase warrants outstanding (excluding the warrants issued as part of theacquisition) with a weighted average exercise price of $1.70 (U.S.). Pro-formanet debt including the assumption of Caroil's working capital surplus of$37-million and estimated transaction costs is forecast to be approximately$130-million.
On completion of the acquisition, Tuscany's fleet of drillingand workover rigs will increase by 14 rigs to 41 (not including the Caroiloperated service rig) of which three from the Brazil acquisition are beingrefurbished for operations into 2012. This rig count is comprises 17 rigs fromTuscany's original build program, two newly built rigs (one currently underconstruction and one that has recently completed construction and is currentlyin transit), 14 Caroil rigs and eight rigs from Tuscany's previously announcedBrazilian acquisition which closed on May 19, 2011.
Based on the combined 38 rigs expected to be in operation bythe end of 2011, plus the one operated service rig, no additional growth fromcash flow and an estimated average utilization rate of 85 per cent, Tuscanyanticipates generating run rate revenues of approximately $350-million andoperating margins of approximately 34 per cent with annual general andadministrative costs of approximately $21-million.
The share purchase agreement and other arrangements betweenthe parties
Complete details of the terms of the acquisition are set outin the share purchase agreement (SPA), which will be filed by Tuscany on SEDARand will be available for viewing under Tuscany's profile on the SEDARwebsite.
The closing of the transaction is subject to customaryconditions including, among other things, Tuscany shareholder and Toronto StockExchange approvals, Tanzanian competition approval, and there not havingoccurred a material adverse change with respect to either of Tuscany or Caroil.On signing the SPA, Tuscany is obligated to deliver a $3-million deposit toM&P, which is non-refundable if the transaction does not close by Sept. 30,2011, other than in circumstances where there has occurred a material adversechange with respect to Caroil which was caused by M&P or Caroil, as set outin the SPA. Further, the parties have agreed to a reciprocal $7-milliontermination payment payable to the other side which must be paid if a partydetermines to terminate the SPA following a material adverse change with respectto the other party, other than in specified circumstances set out in the SPA.Credit Suisse's commitment to finance the new facility contains a materialadverse change clause with respect to Caroil that is identical to the SPA.
The SPA contains customary warranties with respect to each ofCaroil and Tuscany. In the event that Tuscany successfully brings any claimagainst M&P within one year of closing with respect to a breach of awarranty given by M&P regarding Caroil in the SPA, M&P may elect tosettle all or a portion of such claim by the surrender and cancellation ofwarrants issued to M&P in the acquisition at $1.53 per warrant.
At the closing of the acquisition, the relevant parties willalso enter into the following agreements:
- Tuscany and M&P will enter into a shareholder rights agreement (SRA), pursuant to which M&P will be entitled to (i) nominate two nominees to the Tuscany board of directors (subject to maintaining certain ownership thresholds), (ii) require Tuscany to assist with prospectus demand rights with respect to future distributions of the Tuscany shares that M&P owns and (iii) an M&P approval requirement for any Tuscany transaction in the 12 months following closing pursuant to which Tuscany may issue 15 per cent or more of its then-issued-and-outstanding Tuscany shares.
- Caroil and M&P will enter into a drilling services framework agreement pursuant to which Caroil shall agree to perform continuing services to M&P and M&P shall extend certain drilling contracts between Caroil and M&P with an enhanced payment structure in favour of Caroil.
- Caroil and M&P will enter into a transitional services agreement, pursuant to which M&P will provide certain services to Caroil in Paris while arrangements are made to incorporate Caroil into the Tuscany group of companies.
- Caroil and M&P will enter into subleases with respect to certain office space in Paris and Tanzania currently used by Caroil.
Closing is expected to occur in the third quarter of 2011 andis subject to Tuscany shareholder and regulatory approvals. On the completion ofthe acquisition, it is expected that M&P will own approximately 29 per centof the issued and outstanding Tuscany shares (assuming exercise of all of thewarrants). As the issuance of up to 110 million Tuscany shares (including theshares issuable on exercise of the warrants) to acquire Caroil represents morethan 25 per cent of the currently issued and outstanding Tuscany shares, underthe rules of the Toronto Stock Exchange, Tuscany will be required to obtain theapproval of a simple majority of its shareholders for the issuance of Tuscanyshares and warrants to M&P pursuant to the acquisition. It is anticipatedthat a management information circular in respect of the special meeting ofshareholders to approve the acquisition will be mailed to Tuscany shareholdersby mid-July, 2011, which will contain detailed information about theacquisition, Caroil and its operations, and the combined pro forma operations ofTuscany and Caroil. The acquisition is not subject to the approval of M&Pshareholders.
The board of directors of Tuscany has unanimously approvedthe acquisition, as well as the SPA and the SRA, and unanimously resolved torecommend that holders of Tuscany shares vote in favour of the acquisition.Senior management and the board of directors of Tuscany, holding approximately47 million or 17.6 per cent of the issued and outstanding Tuscany shares, haveentered into support agreements to vote their Tuscany shares in favour of theacquisition at the special meeting.
Financial advisers
Jennings Capital Inc. is acting as Tuscany's financialadviser in regards to the acquisition and recommended approval of theacquisition by the Tuscany board of directors.
AM Capital is acting as M&P's sole financial adviser inregards to the acquisition.
We seek Safe Harbor.
© 2011 Canjex Publishing Ltd.