RE:TD Waterhouse report todayFemtosecondfast wrote: Pacific Rubiales Energy Corp. (PRE-T) C$4.67 C$6.50/share Take-out Offer Event Overnight, Pacific Rubiales announced exclusive discussions with respect to a C$6.50/share take-out offer from Alfa SAB (ALFA-MM) and Harbour Energy, subject to completion of definitive documentation and final Board approvals. The company’s Board has constituted a Special Committee of independent directors, which has engaged an independent financial advisor to deliver a formal valuation. ALFA and Harbour Energy have completed due diligence, and have agreed to work toward definitive documentation expeditiously. The offer implies a total consideration of ~C$8.6 billion (~C$2.1 billion of equity value and ~C$6.5 billion of net debt). For background, Alfa SAB is a Mexican conglomerate that acquired ~19% of Pacific Rubiales’ shares in 2014 (at an average cost ~C$19/share / ~C$1.1 billion). Harbour Energy is a joint venture between Noble Group (NOBLSP) and private equity firm EIG Global Energy Partners. Impact: POSITIVE • We viewed Pacific Rubiales as relatively overvalued at recent share prices, and we view the indicated offer of C$6.50 (a 35% premium to last trade) as highly compelling for existing shareholders. Since a formal offer appears likely but has not been fully defined yet, we are shifting our target price to C$6.50, and our rating to HOLD (assuming that the company’s share price will trade higher in reaction to the news). • The bidders appear to be credible potential buyers with potential reasons to see significant strategic value in acquiring control of Pacific Rubiales (that value is unlikely, in our view, to be materialized for shareholders without a corporate sale or restructuring). Since Alfa already owns a significant portion of Pacific Rubiales’ shares, and because we would not view a higher offer as attractive to potential buyers, we do not expect competing bids. • At C$6.50/share, we believe that Alfa/Harbour would be paying for an implied Brent oil price of $80/bbl flat and a relatively full-risked valuation of exploration/ appraisal potential (or a large premium for Mexico business development potential, management expertise, and technologies including STAR), when comparable International E&Ps in our coverage are trading at valuations implying Brent oil prices of $40– $70/bbl. As such, we continue to see more compelling opportunities in other International E&Ps, including a number of mid-sized Latin America-focused E&Ps. TD Investment Conclusion Definitive documentation of an offer from Alfa and Harbour is now critical to confirm the exact nature of the offer. ific Rubiales has a significant track record of operational execution and acquisitions since 2006, delivering growth in production and reserves. It also has a large portfolio of development and exploration projects. As the largest public Latin America-focused independent E&P, we have long viewed Pacific Rubiales as a potential take-out target for large companies (or private equity) wanting to increase their Latin American E&P exposure. We are encouraged by the potential that Mexico’s ongoing energy reforms could hold for International and North American E&Ps, and view Pacific Rubiales as reasonably well positioned to gain assets there. If the offer were not to progress to definitive documentation or fail to receive approval, we are concerned that Pacific Rubiales will need permits, infrastructure expansion, exploration success, and local community/partner co-operation to achieve production targets. Assuming Brent averages $57/bbl in 2015 and a take-out does not occur, we currently expect the company to generate under $700 million of 2015 cash flow, and with net debt of $5.2 billion (C$6.5 billion), we would view financing risk as very high. Pacific Rubiales is also currently trading at a significant premium to its closest comparables on Fully-risked NAVPS, before taking any take-out premium into account. That said, potential positive catalysts as a stand-alone entity would include results from regular drilling across a large portfolio of exploration assets and development projects; start-up of the delayed Agrocascada surface water disposal project; and the Puerto Bahia port (all expected in 2015).
TD tries to save a face that is currently covered in egg.
I'd love to see their math in detail. PRE has estimated cash flow from operations of ~$1.1B with low WTI assumptions and prices currently much higher ($45Q1, $50Q2, $55Q3, $60Q4). If oil prices stay flat, cash flow would more likely be around $1.4B or double their estimate. I expect Q1 to come in around $300M.
Furthermore, net debt is NOT $5.2B. This is TOTAL debt. Have they conveniently forgotten about the >$800M cash on hand? Total consideration for the deal is, therefore, also not accurate in this post. It is closer to $7.4B CAN or much closer to the $6B USD reported by various news agencies.
Unbelievable. They are basically saying, "yeah, we were wrong, but only because they are being bought out and overpaid for, otherwise we were right.". Willing to fudge the numbers to make yourselves look less bad while you're at it, huh TD? Despicable.