Pinecrest will exchange 2.738 of its shares for each Spartan share, representing C$5.12 per Spartan share and C$1.87 per Pinecrest share, the prices at which both stocks closed Tuesday.
The combined company will have 513.4 million shares outstanding with Spartan shareholders owning about 49%, assuming the exercise of certain Pinecrest warrants and options.
Pinecrest CEO Wade Becker will lead the combined company, which may adopt a new name. The companies expect to appoint Spartan directors Richard McHardy and Don Archibald to the combined company's board at closing.
The companies said the deal will form a premier light oil-weighted entity with several projects to work on, most notably the Red Earth Slave Point carbonate play in northern Alberta and the Pembina Keystone Cardium play in central Alberta. The companies said through industry leading netbacks of 91% light oil and liquids and $190 million of anticipated credit facility capacity, the combined company will have the ability to accelerate production and cash flow growth.
The combined entity will have an unlevered balance sheet with an estimated working capital deficit of $35 million at closing, relative to an anticipated credit facility of $225 million, average production next year of 9,200 to 9,600 barrels of oil equivalent per day, proved reserves of 20.1 million barrels of oil equivalent and 500 horizontal light oil drilling locations targeting between the Slave Point at Red Earth and the Cardium at Keystone.
The deal must by approved by 66 2/3% of shareholders, the Court of Queen's Bench of Alberta, regulatory agencies and stock exchanges. Both companies' boards have approved the deal, although Becker, who is a director of both companies, abstained from voting.
Both companies agreed not to solicit or initiate any discussions regarding other combinations or sale of material assets and has granted the other the right to match competing, unsolicited proposals. The deal comes with a C$12.5 million breakup fee.
The merger partners plan to complete the deal by mid-January.
Dundee Securities Ltd. and Scotiabank's David Potter provided financial advice to Pinecrest, while TD Securities Inc. did the same for Spartan. Clarus Securities Inc. and GMP Securities LP are strategic advisers to Spartan, while Canaccord Genuity Corp.'s David Vankka was strategic adviser to Pinecrest.
Pinecrest shares Wednesday were up 1.6% on the Toronto Stock Exchange, while Spartan shares were down 1.2%.
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