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Total Abandons Strad Bid After Two Days

09/10/2015


Pretty hard not to describe it as a fishing expedition as opposed to a long-term strategic investment.

On September 21 Total Energy Services Ltd. announced it intended, subject to many conditions, to make an unsolicited $2.90 per share bid for all the outstanding shares of Strad Energy Services Ltd., a deal with a total value of about $108 million. The offer would be mailed to shareholders in a couple of weeks. Both companies trade on the TSX.

On September 22 Strad announced it was adopting a “shareholders’ rights plan” or “poison pill”, a means of extending the bid process and allowing existing shareholders to buy more stock at discounted prices, thereby dramatically increasing the number of share and altering the target company’s capital structure. It also gives the company more time to find a “white knight”, somebody prepared to pay more than Total in its planned “hostile takeover”.

On September 23 Total withdrew its offer accompanied by less than flattering comments about Strad’s response. In its original disclosure Total claims to have been trying to cement this combination for over a year but has consistently been rejected by Strad’s board.

In defending the deal Total cited numerous operational cost cuts the combination would create that would be of benefit to shareholders of both companies should Strad’s shareholders have chosen to take an option that included some Total stock. It is generally accepted the oilfield services industry as a whole will have to seek management and administrative cost consolidation to succeed during a period of extended low oil prices and intense market competition.

But not this deal, this way, right now.

On a global scale, the Halliburton / Baker Hughes merger and the Schlumberger / Cameron combination show how the biggest players in the business are preparing for oil prices many are describing as “lower for longer”.