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Letter to Shareholders

Letter to Shareholder-December 23 2016 .PDF Version

Reject Total’s Unsolicited Offer: It Significantly Undervalues Savanna

December 23, 2016

Dear Fellow Shareholder,

The Board of Directors of Savanna Energy Services Corp. (“Savanna” or the “Company”) believes your company is poised for recovery. Against this backdrop, Total Energy Services Inc. (“Total”) has launched an unsolicited and opportunistic offer to acquire Savanna in exchange for shares of Total. The exchange ratio significantly undervalues your interest in Savanna.

The Board, after a full review and with the advice of external financial and legal advisors, recommends that shareholders REJECT the Total offer. To reject the Total offer, simply take no action.

Offer Only Benefits Total

Your Board has concluded that Total’s offer undervalues Savanna and benefits only Total. The facts confirm Total’s self-interest:

  • Total’s proposed share exchange would give Savanna shareholders only a minority position in the combined company, even though Savanna would contribute the vast majority of the cash flow and assets.
  • In previous discussions with Savanna’s management Total said that it was only interested in a “no- premium” offer for Savanna, and that it was not willing to participate in a Board-initiated process to review alternatives – a standard practice and duty the Board owes to you as a Savanna shareholder to ensure that shareholder value is maximized in any potential transaction.
  • The Total offer currently provides a discount of approximately 5%. That is significantly below the average control premium of approximately 40% at the time of the offer for similar Canadian public company acquisitions over the past five years. Moreover, the transaction multiples in Total’s offer are too low when compared to precedent transactions.

Recent positive developments

Total’s no-premium offer fails to take into account recent positive internal developments, especially Savanna’s recent financings. Our balance sheet is stronger and we are well positioned to participate in a recovery of industry conditions.

Moreover, Total’s no-premium offer fails to take into account important external events that strongly suggest a recovery is underway. These external events include the nomination to the U.S. cabinet of strong energy industry proponents, the approval of two new Canadian oil export pipelines, and agreements by OPEC members and certain non-OPEC producers to curb production for the first time in eight years.

Savanna will benefit far more than Total from these external events, because Savanna eclipses Total in the highly consequential drilling and well servicing businesses. Savanna has 101 drilling rigs and 87 workover rigs in Canada, the U.S. and Australia. Total, an amalgamation of disparate small businesses, has just 18 drilling rigs, only in Canada. It has no workover rigs anywhere.

Don’t accept Total’s claim

Don’t accept Total’s claim that its offer should be accepted just because it is higher than the share price for our recent financings. Total’s claim ignores, among other things, the following three facts:

  1. All of the external events described above delivered a powerful upgrade to the contract drilling and well servicing sector after Savanna priced its financings.
  2. The objective of the financings was to increase shareholder value beyond the price at which shares were issued. Savanna now has more upside potential, less risk and a more liquid market for its shares.
  3. The financings were for ongoing business and did not deliver a change of control. A takeover bid requires a significant premium in return for a change of control, not a discount of 5%.
  4. Unfortunately, drilling and well servicing operations suffered disproportionately from the past two years of falling commodity prices. But now is the time to reap the benefits from a recovery in drilling and well servicing operations. Don’t let Total’s lacklustre gas compression business dilute your potential gains.

Strategic Alternatives to Maximize Value

As previously disclosed, Savanna’s Special Committee of the Board of Directors has instructed its financial advisor, Peters & Co. Limited, to prepare to conduct a formal process to explore strategic alternatives with a view to maximizing value for all shareholders of Savanna. The Special Committee anticipates that a strategic alternatives process will commence in early 2017.

While there can be no certainty of a superior transaction, the decision to run a strategic alternatives process follows strong expressions of interest from third parties.

Don’t Tender to Total’s No-Premium Offer

Please read the accompanying Directors’ Circular in its entirety. It details the 12 principal reasons we believe shareholders should REJECT Total’s no-premium offer, and it provides the complete background to Total’s offer, including significant facts that the Total Circular omitted or mischaracterized.

The Board of Directors of Savanna unanimously recommends that you REJECT the Total offer and DO NOT TENDER your Common Shares. To reject the Total offer, simply TAKE NO ACTION.

If you have tendered your shares in error and wish to withdraw, simply ask your broker or D.F. King (see contact information below) to assist you with this process.

Thank you for your consideration and for your support.

Sincerely,

“Jim Saunders”                                                                    “Christopher Strong”

Jim Saunders                                                                       Christopher Strong
Chairman of the Board                                                       Director, President & CEO
Savanna Energy Services Corp.                                        Savanna Energy Services Corp.

 

For further information, please visit our website at www.savannaenergy.com or contact our information agent, D.F. King at 1-800-622-1678 or moc.g1488103945nikfd1488103945@seir1488103945iuqni1488103945

Value of the Total Offer discount was calculated on December 21, 2016, as it appears in the Directors’ Circular.

Shareholder Disclaimer

Savanna Energy Services Corp. ("Savanna" or "the Company") is a public company trading on the Toronto Stock Exchange under the symbol SVY. Savanna's expectations and predictions for the future are discussed in our press releases, presentations, quarterly and annual reports. Such statements, including statements in this document and the documents listed above that relate to matters that are not historical are forward-looking statements within the relevant securities regulations in Canada and elsewhere. Certain forward-looking statements may constitute projections regarding future events or the future financial performance of Savanna Energy Services Corp. When used in this website, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "seek", "propose", "estimate", "expect" and similar expressions, as they relate to Savanna Energy Services Corp., are intended to identify forward-looking statements. Such statements reflect Savanna Energy Services Corp.'s views at the time such statements are made with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause Savanna Energy Services Corp.'s actual results, performance or achievements to vary from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized.

It is important to take the following factors into consideration when evaluating Savanna Energy Services Corp.

  • The rise and fall in worldwide prices and demand for oil and gas.
  • Changes in the demand for our services, competitors' existence, technological changes and developments in the oilfield services industry.
  • Changes in levels of natural gas and crude oil exploration and development activities.
  • The continuation of operating risks inherent in the oil field services industry.
  • The continuation of regulatory and legislative uncertainties.
  • The change in tax laws.
  • Political instability, war or acts of terrorism in any of the countries in which we do business.
  • General economic conditions.

Savanna's business depends significantly on the level of spending by oil and gas companies for exploration, development and production activities. Sustained increases or decreases in the price of natural gas or oil could materially impact such activities, and thereby materially affect our financial position, results of operations and cash flows.

The above disclaimer outlines the risks and factors which are important to consider.

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