Oil sands producer Cenovus Energy Inc. (CVE) added 28 cents to $21.53 on 9.84 million shares. A new SEDAR filing has revealed Cenovus to be the mystery suitor that is paying $110-million for Gear Energy Inc. (GXE), down three cents to 51 cents on 3.3 million shares. The "transformative" deal, which will include the creation of a spinout to hold some of Gear's assets -- and give its management and board their next company to run -- was announced by Gear last week, but the purchaser was not identified by name. Now a 150-page arrangement agreement on SEDAR has confirmed the counterparty to be Cenovus. As outlined in last week's press release, Cenovus will pay $110-million cash for Gear and most of its assets. The non-acquired assets will go to an "organic-growth-focused" spinout known for now as Newco. Gear's shareholders can opt to receive, for every Gear share, 60.7 cents, 0.3035 of a Newco share or a combination of both. The cash amount is capped at $80-million. Given that Gear has 263 million shares outstanding, it is presumably crossing its fingers for a fairly even split between shareholders who want cash and shareholders who want Newco equity, or else Newco will find many of its shares in the hands of shareholders who do not want them.
This possibility is one of several reasons why Gear's closing price of 51 cents is well below the offer price of 60.7 cents. Three years ago, the stock was worth nearly $2, and while it has come under heavy pressure since then, Gear was not seen as financially distressed enough to consider selling itself near the bottom of its chart. An asset sale and special dividend might have been a different story. Instead, Gear has opted for a much less straightforward transaction, one that its more cynical investors have noticed will entail change-of-control benefits for insiders. The exact amount of these benefits is not entirely clear, given changes in Gear's management since it last filed compensation disclosures on SEDAR, but according to the most recent disclosures, the five top executives will get a total of $1.99-million. This assumes, of course, that shareholders approve the transaction at a special meeting that Gear has now scheduled for Feb. 3. The lukewarm trading price suggests doubt as to the meeting's outcome.