Savanna Energy Services Corp. shares fell on Monday after investors holding more than half the company's stock tendered to Total Energy Services Inc.'s $225-million hostile offer, all but sealing a takeover battle for the oil-field services provider.
Savanna had agreed early this month to be taken over by Western Energy Services Corp. for a slightly richer stock swap.
However, a trio of large institutional investors had already agreed to back Total's bid – provided a clearly superior proposal did not emerge – and they were not swayed by prospects presented by the white knight.
Sources close to the deal said Total offered investors a less indebted combined company and higher cash flow per share after the close of the deal. This appears to have been a key factor for slightly more than half the shareholder base as conditions in the oil-service sector have deteriorated in recent weeks. Crude oil and natural gas prices have weakened, raising fears that oil-company clients could claw back spending.
Chris Strong, Savanna's chief executive officer, declined to comment on what transpired as the two bidders competed to win over investors in what has been an unusually acrimonious takeover battle, saying more details will be released in the coming days.
Savanna fell 1.5 per cent on the Toronto Stock Exchange on Monday after what appeared to be a victory for Total, which rose less than 1 per cent.
Total had set its bid threshold at 50.1 per cent of Savanna shares.
Investors in Western were relieved that it avoided major amalgamation, bidding up its shares nearly 9 per cent.
Total offered 0.13 of one of its shares, plus 20 cents in cash, for each Savanna share. Western's latest bid was 0.85 of one of its shares, plus 21 cents, for each Savanna share.
"Those three institutional shareholders nonetheless stayed steadfastly committed to Total throughout and used their assessment of longer-term considerations … to essentially justify taking the lower bid from Total," said one well-placed source.
"Total could, of course, have made the outcome more certain for itself by raising its bid, but it did not want to pay more for Savanna, nor trigger the customary break fee."
Total said it intends to acquire additional shares after it extended its offer to April 7. "The board of directors and senior management of Total Energy will look to immediately engage with their counterparts at Savanna in an effort to facilitate an efficient and co-operative transition, in the best interests of Savanna, its shareholders and other stakeholders," Total said in a statement.
Western acknowledged that its offer had come up short. "Western is currently evaluating the effect of this announcement and its impact on Savanna," the company said. "Western and its board of directors are understandably disappointed with the outcome of the bid."
Savanna, which became a target for Total in late 2016, had tried persuade investors that Western's bid, which was sweetened once, was a better bet because the group could work together more co-operatively.
The apparent victory for Total would be the second big deal in the oil-field services sector this month, showing a move to consolidation amid shaky conditions. Last week, Trican Well Service Ltd. agreed to take over smaller rival Canyon Services Group Inc. for $600-million in stock.
Meanwhile, two private oil-service providers, STEP Energy Services Ltd. and Source Energy Services Ltd., postponed initial public offerings, blaming adverse market conditions.
Jeffrey Jones