MEDIA / MARKETS APPLAUD $336M CRESTAR ENERGY AND GRAD & WALKER ENERGY MARRIAGE
Thursday, July 3, 1997
Markets Applaud $336M Crestar, Grad & Walker Deal
By SANDRA RUBIN The Financial Post
Crestar Energy Inc. uncapped a $336-million friendly takeover bid for Grad & Walker Energy Corp. yesterday, a deal the market signalled is a significant strike for both companies.
Shares of Grad & Walker (GWE/tse) topped the most actives in Toronto, soaring $2.35 to close at $13.50 on volume of 4.5 million shares.
Crestar (CRS/tse) shot up $1.50 to close at $26.60.
"I love this deal," said Peter Linder, an analyst with CIBC Wood Gundy Inc. in Calgary.
"For starters, the properties they're getting are a very good fit with Crestar's existing properties. And it's accretive per share -- it adds to cash flow per share both this year and next year.
"The Street was waiting for Crestar to do a deal. Here's the deal and it makes sense. I've raised my target price from $31 to $35 for the stock one year out."
Under the terms of the offer, expected to close July 28, Crestar will pay $13.50 cash for each Grad & Walker share, or 0.509 of a Crestar common share, to a maximum of five million shares.
The takeover is conditional on two-thirds of shares being tendered. But Crestar already has the backing of some key players.
Holding company Grad & Walker Resources, owned by founders Stan Grad and Willard Walker, has agreed to turn over its 15% stake along with the 6% owned by some officers and directors.
The bid represents a 45% premium over Grad & Walker's average trading price in June.
"This is a substantial premium and clearly it allows the Grad & Walker shareholders to realize value today that might have taken some time in the market," Crestar president Barry Jackson said in a conference call.
Crestar, which has a market capitalization of about $1.3 billion, will assume about $75 million in Grad & Walker debt. But the proposed takeover will provide some relief from the taxman, thanks to about $165 million of tax pools Grad & Walker brings to the table.
"Our assessment at this point would suggest this transaction will eliminate all of our cash taxes in Crestar and any subsidiaries in 1997 and very likely through all of 1998, pushing us to two years of tax-free performance," Jackson said.
The Deal:
Crestar offers $13.50 cash or 0.509 of Crestar share of Grad & Walker
Total value - $336 million
Grad & Walker officials, with 21% of stock, will tender to Crestar's bid
Operations 1996............Crestar.....Grad & Walker
Revenue ($billion)........... 512 .................56
Cash flow....................... 263 .................35
Production*............... 72,000...........10,000
*Barrels of oil equivalent a day
The two Calgary-based companies are involved in oil exploration and production in southwestern Saskatchewan and central Alberta, and have some adjacent lands.
Crestar expects to drill 150 to 200 wells on Grad & Walker land over the next 18 months, well over the 60 budgeted for 1997. About a third will be in Mantario, southwestern Saskatchewan, where the two firms have core operations.
"There's a lot of upside potential when you put more capital against properties that have been somewhat capital constrained," said an analyst who asked not to be identified.
"It's pretty clear that this is a substantial win-win. But clearly it's not a done deal. We'll see if anybody else comes out of the woodwork. It's possible somebody could come in with a $14 bid."
Grad & Walker has agreed to pay Crestar a "non-completion" fee of 2.8% plus costs under certain circumstances, which it did not reveal. It has also agreed not to solicit other bids.
"We believe the acquisition by Crestar provides excellent value for our shareholders," said Grad & Walker president Brad Hurtubise. "The share election provides the opportunity for continued participation in the growth of our assets."
Grad & Walker began operations in 1986 when Walker -- Wal-Mart Stores Inc. founder Sam Walton's first store manager -- gave Alberta rancher Grad enough Wal-Mart stock to borrow money and start the company after the two had met by chance.
The company went public in 1993, but faced a cash crunch soon after when it acquired another small oil company with debt financing as natural gas prices slumped.
Despite a successful restructuring two years ago, Grad & Walker remained out of favor with the stock market. Its restructuring included the sale to Crestar of its Mantario oilfield for $46 million.
"In 1997, things were going fine but valuations hadn't caught up to us," Hurtubise said. "After our troubles in '95, the market had just moved on.
"We're cheap and when you're cheap in this kind of market and you have the quality of assets that we have, you can't last long."
-- with files from Reuter |
