IRON BRIDGE RECOMMENDS SHAREHOLDERS REJECT VELVET ENERGY'S HOSTILE OFFER
Iron Bridge Resources Inc.'s board of directors, based upon the recommendation of
the company's independent special committee, unanimously recommends that Iron Bridge shareholders
offer from Velvet Energy Ltd. to acquire all of the issued and outstanding common shares of Iron Bridge at a price of 75 cents per common share in cash.
As described in the letter to shareholders and directors circular filed
today by the company, the Iron Bridge board carefully reviewed and
considered the terms and conditions of the offer, with the assistance of
its legal and financial advisers. On the basis of multiple factors,
including an inadequacy opinion received from Cormark Securities Inc.,
its independent financial adviser, the board has unanimously concluded
that the offer is not in the best interests of Iron Bridge shareholders.
The company has the support of its largest shareholders in rejecting the
offer. Iron Bridge shareholders who together own approximately 36 per cent of the
outstanding common shares, including the company's two largest
institutional shareholders, have indicated that they will not tender
their common shares in response to the Velvet offer.
Commenting on Velvet's offer, Josh Young, non-executive chairman of Iron
Bridge, said: "The board has determined that Velvet Energy's predatory
and conditional offer with its meagre premium substantially undervalues
Iron Bridge and is not in the best interest of our shareholders. This
cash takeover proposal would transfer all of the upside from our
premium Montney asset to Velvet Energy at the expense of Iron Bridge
shareholders. With a world-class asset, a strong development plan,
access to growth capital and a veteran management team, Iron Bridge is
poised to deliver superior long-term shareholder returns and
considerable value appreciation over the next 12 to 18 months, which is
why we strongly recommend shareholders reject what is essentially a smash-and-grab effort by Velvet Energy. Potential white knight and
strategic capital partners have already emerged: A superior alternative
The board's recommendation to Iron Bridge shareholders is that they
the offer and
do not tender
common shares. If shareholders have tendered their common shares in
error and wish to
simply need to ask their broker or Evolution Proxy Inc. for assistance with this process. A more detailed
discussion of the reasons for rejecting the unsolicited offer and the
inadequacy opinion provided by Cormark Securities Inc. is contained in
the directors circular that is to be mailed to each of Iron Bridge's
shareholders and filed with Canadian securities regulatory authorities.
The directors circular will also be made available on SEDAR and on the company's website.
The full text of the board's letter to Iron Bridge shareholders follows.
Reject Velvet's hostile offer: It significantly
undervalues your investment in Iron Bridge.
"June 13, 2018
"Dear fellow shareholder,
"The board of directors of Iron Bridge Resources
company is well positioned to deliver superior, long-term shareholder
returns. Against this backdrop, Velvet Energy has launched an unsolicited, hostile offer to
acquire Iron Bridge. Velvet's offer significantly
undervalues your investment in Iron Bridge. The all-cash offer will only
ensure that Velvet, not you, receives all future upside from Iron
"Velvet has demonstrated that it has no interest in negotiating a
transaction, and it commenced its tender offer in the hopes of trying to
grab Iron Bridge cheaply. While the company's highly sought-after, oily
Montney acreage represents a key impediment to Velvet's development
plans, the offer would benefit only Velvet and its private equity
backers without sharing any benefit with shareholders of Iron Bridge. Your board has
undertaken a full review of Velvet's hostile offer. With the assistance
of independent external financial and legal advisers, the board has
determined that the offer significantly undervalues the company and
recommends that shareholders reject Velvet's offer. To reject the
offer, simply take no action and discard any materials received from
"Velvet's offer is flawed and significantly
undervalues your investment in Iron Bridge.
"Iron Bridge shareholders have weathered a challenging, industrywide
downturn and, in the last 10 months, a significant restructuring of the
business. Iron Bridge is now well positioned with the right assets and
the right team to benefit from the cyclical recovery of the oil and gas
sector. The Velvet offer does not recognize the current value of Iron
Bridge, strips shareholders of the substantial, near-term upside of the
company's assets and provides no premium for the synergies Velvet would
claim from combining the lands, as demonstrated by the following:
"Velvet is offering Iron Bridge shareholders a meagre premium of 27 per cent to
the closing price of Iron Bridge on May 18, 2018, only days after the
company announced its highly positive Gold Creek Montney well
production results. Velvet's claim to offer a 58-per-cent premium relative to
the closing price on May 11, 2018, is highly misleading and
conveniently ignores this timeline of events.
- "The all-cash offer deliberately strips Iron Bridge's shareholders of
their ability to maintain exposure to the growth upside of the
company's Gold Creek Montney asset and the improvement in the
commodity sector. It also does not reflect the fact that acquirers
typically pay a higher premium to fairly compensate a company that is
not actively seeking offers to sell. Shareholders would be
surrendering their ownership at the cycle bottom.
"Iron Bridge's lands are in the very heart of the oily Montney fairway
and represent an impediment to Velvet's development plans. Despite the
significant strategic value an acquisition of these lands would
deliver to Velvet, its offer shares none of this benefit with Iron
- "The offer significantly undervalues the company relative to its
sum-of-the-parts buildup value driven by precedent Montney land
transactions. In fact, the offer price captures less than 15 per cent of the
Gold Creek Montney resource value potential.
- "The company's independent financial adviser, Cormark Securities,
has provided a fairness opinion, which states that the consideration to
be received by the holders of Iron Bridge shares pursuant to the
Velvet offer is inadequate, from a financial point of view, to Iron
"Management has a viable plan to generate
substantial value for shareholders.
"Contrary to Velvet's misrepresentations, Iron Bridge's long-term
financial and operational prospects are strong. The company is well
positioned to realize significant value for shareholders from the
development of its large, 77.5-net-section land block in the oil-rich
window of the Gold Creek Montney formation, which management estimates
to contain 3.2 billion barrels of unrisked original oil in place (OOIP)
and 2.7 trillion cubic feet of original gas in place (OGIP):
- "The company has access to capital to pursue its growth plans. Its
early-stage net asset value of $1.25 per share calculated at year-end
2017 is readily financeable in today's capital markets and represents
only 28 of the company's more than 500 identified undeveloped drilling
locations. Several weeks prior to Velvet's bid, Iron Bridge initiated
discussions with a number of parties, which are prepared to provide
capital for the company's development program. Iron Bridge has term
sheets in hand and expects more in the coming weeks. The level of
interest from these parties speaks to the growth potential of the
company's assets and management's ability to convert these assets into
production and cash flow. The company is confident in its ability to
finance its development plan.
- "Velvet is intentionally misleading shareholders by pointing to cost
structures that relate to a finite period of time when the company had
intentionally shut in production for operational reasons. Cash costs
that Velvet claims were $29.33 per barrel of oil equivalent in the first quarter of 2018 were
in fact approximately $17.95 per boe on the date of its offer and is
expected to decrease more as production grows. General and
administrative costs that Velvet claims were $9.54 per boe in the first
quarter were in fact approximately $3.75 per boe on the date of its offer
and are anticipated to drop commensurate with production growth.
Moreover, it is misleading to compare the company's costs as an early-stage oil
growth company on a per-barrel-of-oil-equivalent basis to a later-stage gas producer like
Velvet due to the company's growth trajectory and the fact that the company's produced
barrels have higher liquids content and are worth more.
- "As part of restructuring Iron Bridge's management and board only 10
months ago, senior technical leaders with more than 115 years of
combined operating history joined Iron Bridge. This team has
unparalleled experience drilling high-intensity, multifrack horizontal
wells. Furthermore, management and other insiders hold approximately
15 per cent of the common shares outstanding and are fully aligned with
- "The company is exploring all options to maximize value for
shareholders. As previously disclosed, the special committee of the
board has instructed its financial adviser to prepare and conduct a
formal process to explore strategic alternatives, including continuing
as an independent company, a merger or partnership with a strategic or
financial partner, or a sale reflecting the full and fair value for
Iron Bridge shareholders.
"Velvet Energy is a private equity vehicle using
aggressive, questionable tactics to obtain your shares.
"Velvet is primarily backed by private equity investors who are no doubt
attracted to the significant upside and critical mass that Iron Bridge
offers. Velvet likely also recognizes that, without this acquisition,
its own landholdings present substantial development challenges. Rather
than negotiating a mutually beneficial transaction, Velvet chose to
launch a hostile bid while Iron Bridge's stock price was weak. Despite
the company's willingness to enter into exclusive discussions, Velvet
even refused to accept a customary, but short, three-day standstill
proposal to do so. Velvet has demonstrated no interest in engaging in
beneficial mutual negotiations.
"These aggressive manoeuvres were mirrored by its shocking actions on the
legal front. Velvet's law firm, Bennett Jones LLP, was retained by the
Iron Bridge board only 12 months ago to provide advice on an earlier
approach by Velvet to acquire Iron Bridge. At that time, the law firm
had access to confidential and commercially sensitive information. The
same partner which previously advised the board is now the lead legal
adviser for the hostile offer. Iron Bridge is considering its legal
options regarding this severe conflict of interest and potential
disclosure and misuse of Iron Bridge confidential information to Velvet,
enabling Velvet to make the offer.
"A large percentage of Iron Bridge shareholders
have already rejected the Velvet offer.
"Shareholders with a total ownership interest of approximately 30 per cent of the
shares outstanding, including insiders and the two largest institutional
shareholders, have voiced considerable support for the board's
recommendation and have declared their intention to reject the offer.
Further, since Velvet has formally commenced the offer, additional
shareholder groups, representing approximately 6 per cent of the total common
shares outstanding, have provided similar support. Thus, shareholders
representing a combined approximately 36 per cent of the common shares
outstanding support the board's view that Iron Bridge is capable and
well positioned to realize considerable value appreciation over the next
12 to 18 months.
"The board of directors of Iron Bridge unanimously recommends that you reject
the offer and do not tender your common
shares. To reject the offer, simply take no action.
"Please read the accompanying directors circular in its entirety. It
details the 17 principal reasons the company believes shareholders should
Velvet's low-premium offer, and it provides the complete background
to Velvet's offer, including significant facts that the Velvet circular
omitted or mischaracterized.
"If you have tendered your shares in error and wish to withdraw,
simply ask your broker or Evolution Proxy to assist you with this process.
"Thank you for your consideration and for your support.
"Josh Young, chairman of the board, and Rob Colcleugh, chief executive officer
"Iron Bridge Resources"
How to withdraw tendered common shares
To reject the unsolicited offer, you should do nothing. Shareholders who
have already tendered their common shares to the unsolicited offer can
withdraw them at any time before they have been taken up and accepted
for payment by Velvet Energy. Shareholders holding shares through a
dealer, broker or other nominee should contact such dealer, broker or
nominee to withdraw their Iron Bridge common shares.
Cormark Securities is acting as financial adviser to the company,
Torys LLP as legal adviser, Evolution Proxy as information agent and
Gagnier Communications as strategic communications adviser.
We seek Safe Harbor.
© 2018 Canjex Publishing Ltd. All rights reserved.