88 Energy has offered 2.4 new 88 Energy shares for every XCD share held and 0.7 new 88 Energy shares for every XCD listed option – a deal that implies a value of $1.46 per XCD share and $0.42 per option.
This implied value represents a 191% premium to XCD’s closing price of $0.50 per share on 24 April (the last trading day prior to the initial announcement) and is 112% higher than the closing price of $0.20 per listed option.
XCD noted the offer also indicates a significant premium to the company’s most recent capital raising price of $1 per share, which was completed last November when the crude oil price was over US$50 per barrel.
In a target’s statement released on Monday, XCD directors have unanimously recommended the terms of the takeover bid in the absence of a superior proposal and subject to the independent expert, BDO Corporate Finance, continuing to conclude it is fair and reasonable.
The target’s statement follows a replacement bidders statement released by 88 Energy at the end of last week and the announcement on 7 May that XCD had entered into a bid implementation agreement with 88 Energy and agreed to merge to form an Alaska-focused oil exploration company.
Key considerations in favour of acceptance
In the letter from the board, XCD non-executive chairman Peter Strickland said the directors’ recommendation is based on the belief that the offer provides an “attractive” premium and can provide the potential for enhanced liquidity for XCD shareholders.
He said XCD shareholders will also have the “opportunity to participate in the strategic benefits, project diversity and operational synergies of the combined group”.
“The combined group will have greater market presence and investor awareness, an enhanced ability to attract project partners and a greater likelihood of being able to fund its growth opportunities compared to XCD Energy on a standalone basis,” Mr Strickland added.
If 88 Energy is successful in taking over XCD, the combined group will have an expanded portfolio of oil exploration assets on Alaska’s North Slope.
The group’s combined acreage will span about 520,000 net acres (2,104sq km) and include three key projects: Project Icewine, Yukon and Project Peregrine.
88 Energy’s Project Icewine has been matured through both 2D and 3D seismic surveys and three exploration wells and is in proximity to strategic infrastructure.
While XCD’s Project Peregrine is considered relatively less mature, the company said it could “potentially benefit from synergies that may arise should the combined group have a commercial development at Project Icewine”.
XCD said the proposed merger will also provide exposure to 88 Energy’s experienced management team with operational capabilities.
“88 Energy’s management and operational group have a proven track record for acquiring seismic and drilling exploration wells in Alaska, on time and on budget, executing farm‐in/farm‐out agreements, promoting 88 Energy and raising significant capital,” XCD stated.
The offers are due to close on 25 June 2020.