DNO is offering C$2.30 for each Class A common share of Calvalley, a 60% premium over its closing price of C$1.43 Wednesday on the Toronto Stock Exchange. DNO said it hasn't received any "meaningful engagement" from Calvalley's board or senior management regarding the offer, which was originally made in late May, and because of the size of the premium decided to take the offer straight to shareholders.
DNO expects to start the offer on July 12 with an expiration date of Aug. 16. The deal must be approved by 66-2/3% of Calvalley's shareholders.
DNO executive chairman Bijan Mossavar-Rahmani said in a statement the transaction complements its Yemen asset base and fits with its strategy of continuing to build a balanced portfolio of production, development and exploration assets in the Middle East and North Africa.
Some analysts say the offer doesn't adequately value Calvalley's properties and cash position, which amounted to C$25 million last year.
DNO may be taking advantage of Calvalley's distress over accusations by the Alberta Securities Commission that its former and current senior management -- including CEO Edmund Shimoon -- engaged in insider trading. They have denied the charges.
The regulator alleged in May that Shimoon was aware of the contents of a report by outside engineers indicating that company's oil reserves in Yemen were significantly larger than publicly known and that he and the company's then-chief operating officer Memet Kont shared the results with an investor in 2009 before it was to be released. The regulator has set a hearing on the case for Sept. 13.
Calvalley's principal asset is a 50% working interest in Block 9 in Yemen's Sayun-Masila Basin. Calvalley also owns a 100% working interest in a production sharing contract in the Metema and Gimbi blocks in Ethiopia.
DNO holds working interests in five assets in Yemen, three of which are in production with 4,169 barrels of oil per day in the first quarter. Calvalley would add production of 1,942 barrels of oil per day to DNO. Calvalley's Block 9 is within the same area as DNO's Yemen assets and operations.
DNO said the offer doesn't have to clear any financing condition.
Yemen is rich with oil and gas reserves but political instability and militant attacks on pipelines have made it difficult for oil and gas companies to get them out of the ground. Calvalley recently resumed drilling activity after suspending it last year due to security concerns and evacuating its crews from the country. DNO also recently resumed drilling there after service contractors and rig personnel returned.
Occidental Petroleum Corp. also has been active in Yemen.
Macquarie Capital was the financial adviser for DNO on the offer. Keith Chatwin, Chris Nixon, Stephen Cooper, Doug Richardson and Susan Hutton of Stikeman Elliott LLP are its legal advisers.
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