RE: PACE shareholders .... Why vote 'No' to this deal?
1} As noted in previous posts, the deal smells of insiders paying themselves 15,000,000 2.5 years ago during the creation of Pace possibly in exchange for a wink and a nod to later pay off others in the original deal a similar though only slightly less outlandish separation package of 5,300,000 which is now on the table (and has been duly voted down by shareholders). Shareholders are tired of small and mid-cap oil execs milking companies for their own personal benefit to the detriment of the shareholders and the companies. I repeat:
I find it fascinating that under the terms of the prospectus whereby Provident's upstream business was combined with Midnight to creat Pace in 2010, executives of Provident received $5,300,000 in severance and $10,900,000 in shares or options, while the execs at Midnight, as the new managers of the business at Pace, got no compensation other than a continuing paycheck from Pace. Excerpt from the terms of arrangement in 2010:
"Provident has employment agreements with four senior officers pursuant to which Provident has paid, or will become obligated to pay, upon completion of the Arrangement, a retiring allowance of between 1.5 and 2 times such officer's current annual salary, an amount under Provident's short term incentive plan, plus an additional amount for loss of benefits and perquisites, as a result of the transactions provided for in the Arrangement and the decision by Provident to rationalize and ultimately dispose of its oil and gas business. The aggregate payments in respect of these amounts under such executive contracts total approximately $5.3 million. The executive employment agreements also provide for the acceleration of the vesting of unit awards granted to these four officers under Provident's long term incentive plan as a result of the Arrangement, which has resulted or will result in the payment by Provident to such officers of approximately $10.9 million.
Midnight does not currently have any employment agreements in place with its senior officers with the anticipation that the industry standard approach would be approved at the time of any transaction in which severance obligations may be triggered. It is not contemplated that the transactions contemplated by the Arrangement will result in any severance obligations to senior officers or management of Midnight. However, Midnight expects to pay amounts under its short term incentive plan as bonuses in connection with the Arrangement in accordance with normal industry peer guidelines."
Now, fast forward to today, simply replace "Midnight" with "Charger" and "Provident" with "Pace" and the flip flop deals look eerily similar with Charger executives, including Buchanan, not receiving severance but having a job going forward in the latest transaction. On the backs of shareholders' value in the enterprise, millions being paid out (from cash flow, debt or credit facilities), in the first transaction to pay severance to one group, and, then, 2.5 years later, the others return the favour. Nice work if you can get it! Total expenses of the Provident Midnight arrangement were also around $25,000,000.
So why is Buchanan buying a half million worth of Pace shares, as I presume he can't vote them? Just that Pace is desperately undervalued? What more do these fellows sleeves have up their sleeves?
Fool me once, shame on you. Fool me twice, shame on me. IMHO.
2) Pace shareholders are not receiving fair value for their contribution to the new company, providing 2/3 production but only receiving 47% shares and only reducing debt to cash flow from 3/1 to 2.5/1. A fairer deal would have been 60% of the shares in the new company, or at least 1.5 Spyglass shares for ever Pace share, not 1.3
3) The dividend deal is just a carrot to induce uninformed yes votes over the short term and is not sustainable beyond 6 months.
4) Pace has great assets that are not properly valued in this deal, AvenEx brings some cash from the ill advised sale of ER, but Charger brings nothing of interest to the table and should receive half or less of the shares in Spyglass that they were allocated in this deal.
5) Shareholders have lost faith in management and have already voted this deal down. And now management is seeking to fix the vote that they lost by avoiding a meeting until they have exhausted attempts to get shareholders to change their minds. I am not sure about the legalities of this, though I note in the circular "The Chairman of the Pace Meeting may waive or extend the proxy cut-off without notice" (xv), and I have already initiated a complaint with the Alberta Securities Commission. The press release announcing postponement of the Special Meetings did not report who specifically representing each company met and voted to postpone and they gave no reference to their authority to do so, again keeping shareholders in the dark about the process of their less than arm's length transactions. If the vote had succeeded last week, would management have avoided recording the vote at a meeting and appealed for more 'No' votes to be cast? Obviously not, as they are losing out on their golden handshakes with the scuttling of the deal. A vote is a vote, and they lost. They have no credibility.
So, there you have the opinion of a shareholder: Dump the deal, firm up the board and management with new blood as necessary, and let's get this company performing to its substantial potential, with arm's length negotiations with other interested parties as we go forward.
Thanks,
WKH