Painted Pony Energy, a Calgary-based natural gas producer, has agreed to be acquired by Canadian Natural Resources Ltd. The purchase price is about C$461 million (US$344 million) including debt, Reuters reported. The deal is expected to be reviewed by shareholders in September and closed shortly thereafter. Painted Pony’s investors include ARC Financial Corp and EnCap Investments, which took stakes in the company when it acquired UGR Blair Creek in 2017.
Painted Pony Enters into Agreement to be Acquired by Canadian Natural Resources Limited
CALGARY, Alberta, Aug. 10, 2020 (GLOBE NEWSWIRE) — Painted Pony Energy Ltd. (“Painted Pony” or the “Corporation“) (TSX: PONY) announces that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with Canadian Natural Resources Limited (the “Purchaser”) (TSX, NYSE: CNQ) pursuant to which the Purchaser has agreed to acquire all of the issued and outstanding common shares of Painted Pony (“Painted Pony Shares”) for cash consideration of $0.69 per Painted Pony Share (the “Purchase Price”). The Purchase Price represents approximately a 30% premium over the twenty-day volume weighted average trading price of the Painted Pony Shares on the Toronto Stock Exchange (the “TSX”). The proposed transaction (the “Transaction”) is to be completed by way of a plan of arrangement under the Business Corporations Act (Alberta).
Weak prices for natural gas over the past three years and a recent decline in natural gas liquids (“NGL”) prices have resulted in lower than expected adjusted funds flow. This sustained period of low adjusted funds flow, as well as Painted Pony’s limited ability to access external markets on an accretive basis, has deprived Painted Pony’s asset base of the capital necessary to fund meaningful development. Given the challenges facing Painted Pony, including potential near-term liquidity considerations, the Corporation’s Board of Directors (the “Board”) initiated a confidential process, supervised by a special committee of independent members of the Board (the “Independent Committee”) to explore opportunities to enhance shareholder value (the “Process”).
After reviewing Painted Pony’s current circumstances and the proposals received in connection with the Process, the Board determined that the Transaction represented the best alternative for Painted Pony’s shareholders given current industry, economic and capital markets conditions. The Purchase Price is all cash and not subject to any financing conditions, which provides Painted Pony shareholders with an immediate opportunity to realize full liquidity and certainty of value in cash for their investment in the Corporation.
THE ARRANGEMENT AGREEMENT AND APPROVALS
Under the Transaction, the Purchaser will acquire all of the issued and outstanding Painted Pony Shares in exchange for the payment to shareholders of the Purchase Price for each Painted Pony Share held.
Painted Pony will seek approval of the Transaction by its shareholders and holders of options (together, the “Securityholders“) at a special meeting expected to be held in September 2020 (the “Meeting“). The Transaction is subject to approval by Securityholders at the Meeting, including the approval of at least: (a) two-thirds of the votes cast by the shareholders in person or represented by proxy at the Meeting; (b) two-thirds of the votes cast by the Securityholders in person or represented by proxy at the Meeting, voting together as a single class; and (c) if required, a majority of the votes cast by shareholders in person or represented by proxy at the Meeting, after excluding the votes cast by those shareholders whose votes are required to be excluded in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.
The Transaction is subject to various closing conditions, including receipt of court approval, the required Painted Pony Securityholder approval at the Meeting and certain regulatory approvals, including approval under the Competition Act (Canada). Upon closing of the Transaction, the Painted Pony Shares will be de-listed from the TSX.
The Arrangement Agreement contains customary representations and warranties of each party and interim operational covenants by Painted Pony. The Arrangement Agreement also provides for, among other things, customary support and non-solicitation covenants by Painted Pony, subject to a “fiduciary out” for unsolicited “superior proposals” in favour of Painted Pony and a provision for the right to match any superior proposals in favour of the Purchaser.
The Arrangement Agreement provides for a non-completion fee of $20 million, payable in the event that the Transaction is not completed or is terminated in certain circumstances, including if Painted Pony enters into an agreement with respect to a superior proposal or if the Board withdraws or modifies its recommendation with respect to the Transaction.
All of the directors and executive officers of Painted Pony, together with Painted Pony’s two largest shareholders, have entered into support agreements and have agreed to support the Transaction and vote an aggregate of approximately 25% of the outstanding Painted Pony Shares in favour of the Transaction, subject to the provisions of such support agreements.
Further details with respect to the Transaction will be included in the information circular to be mailed to the Securityholders in connection with the Meeting. The Meeting is expected to be held in September 2020 with closing of the Transaction to occur soon thereafter upon satisfaction of all conditions precedent. A copy of the Arrangement Agreement and the information circular will be filed on Painted Pony’s SEDAR profile and will be available for viewing at www.sedar.com.
RECOMMENDATION OF THE BOARD
Based on the Fairness Opinion (as defined below) and the recommendation of the Independent Committee, and after consulting with its financial and legal advisors, among other considerations, the Board has unanimously: (i) determined that the Arrangement is fair, from a financial point of view, to Painted Pony’s shareholders; (ii) resolved to recommend that the Securityholders vote in favour of the Transaction; and (iii) determined that the Arrangement and the entry into the Arrangement Agreement are in the best interests of Painted Pony.
TD Securities Inc. (“TD”) and RBC Capital Markets are acting as Co-Lead Financial Advisors, and Raymond James Ltd. is also acting as a Financial Advisor, in connection with the Transaction. TD provided a verbal fairness opinion (the “Fairness Opinion”) that, subject to review of the final form of documents affecting the Transaction, as at the date of the Arrangement Agreement, the consideration to be received by Painted Pony shareholders pursuant to the Transaction is fair, from a financial point of view, to Painted Pony shareholders.
Blake, Cassels & Graydon LLP is acting as legal counsel to Painted Pony.
Bennett Jones LLP is acting as legal counsel to the Purchaser.
Gryphon Advisors Inc. is acting as proxy solicitor for Painted Pony.
ABOUT PAINTED PONY
Painted Pony is a publicly traded natural gas company based in Western Canada. The Corporation is primarily focused on the development of natural gas and natural gas liquids from the Montney formation in northeast British Columbia. Painted Pony’s common shares trade on the TSX under the symbol “PONY”.
Patrick R. Ward
President and Chief Executive Officer
Stuart W. Jaggard
Chief Financial Officer
Jason W. Fleury
Director, Investor Relations
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