Changes to Calfrac Management Transaction Fall Woefully Shor

|Sep 25|magazine33 min read
  • Amended Management Transaction actually offers shareholders cash consideration of no more than $0.119 per share vs $0.18 per share under the Wilks Premium Offer
  • Amended Management Transaction provides shareholders with cash consideration that represents at best a 20% discount to the current market price of Calfrac shares and a 34% discount to the cash consideration available under the Wilks Premium Offer
  • Amended Management Transaction is not capable of being implemented under its amended terms without the consent of the second lien lenders, which consent will not be provided
  • Wilks' Premium Offer does not require the consent of Calfrac or any of its creditors
  • Calfrac's Board failed to protect shareholder value in agreeing to the initial Management Transaction and has failed to do so again
  • The Amended Management Transaction changes nothing. The Premium Offer will be available on its terms no matter what actions Calfrac may take or threaten

CISCO, Texas, Sept. 25, 2020 /PRNewswire/ - Wilks Brothers, LLC ("Wilks") acknowledges the press release by Calfrac Well Services Ltd. ("Calfrac" or the "Company") (TSX: CFW) yesterday in which they announced that they have amended the Management Transaction. 

What yesterday's announcement makes crystal clear is that the Board of Calfrac has been forced to concede that the original Management Transaction was fundamentally flawed and undervalued its shareholders' interests in the Company. In effect, the self-selected unsecured creditors and Calfrac insiders who proposed the Management Transaction were attempting to appropriate that value for themselves.  Through Wilks' efforts, and at considerable expense, that value has been pried from their grasp and grudgingly conceded to the long-suffering shareholders of Calfrac. This marks only the first step in ensuring that Calfrac's shareholders receive fair value.

Maybe now Calfrac will stop trying to distract its shareholders with name calling and innuendo regarding Wilks' alleged motives and focus on their fiduciary duty of doing what is best for Calfrac and its stakeholders.  If they do so, they will recognise that even their amended Management Transaction is still not the best alternative for Calfrac or its stakeholders and falls woefully short of the superior value that Wilks has offered through both the Premium Take-Over Bid (the "Premium Offer") and the Superior Alternative Proposal.

There are several aspects of the amended Management Transaction that immediately stand out and deserve attention:

  • Calfrac's cash consideration per share is SIGNIFICANTLY LESS than Wilks' Premium Offer of $0.18 per share. The "cash election" is a classic "bait and switch". The cash election is hard capped at an aggregate of $10 million (vs $26 million under the Wilks Premium Offer) and shareholders who are expecting to receive the advertised $0.15 per Calfrac share under the amended Management Transaction will likely never receive that amount. On the basis of the information provided by Calfrac in its materials, shareholders could only receive, at most, cash recovery of between $0.089 to $0.118 per share, depending upon the elections made by those who Calfrac has indicated will not participate and those who Wilks believes are unlikely to participate. Under all scenarios the Wilks Premium Offer provides a far superior recovery to shareholders.
  • Low Insider Conversion Price vs High Shareholder Strike Price. The warrants that are being offered to shareholders under the amended Management Transaction have a ($0.05) strike price that is significantly higher than the ($0.027) conversion price that the self-selected group of unsecured creditors and insiders negotiated for themselves under the $60 million "payment in kind" loan transaction.
  • Wilks Premium Offer is Straightforward and Delivers Superior, Cash Recovery. Wilks Premium Offer is all in cash, with no caps, pro-rationing or other gimmicks and has certain, present value of $0.18 per share.
  • Secured Debt of Calfrac Increases under Amended Management Transaction. The amended Management Transaction would further increase the secured debt of a "restructured" Calfrac by $10 million and annual debt service costs by $1 million. Total secured debt post-restructuring would be $365 million and annual debt service costs would be $32 million. The already high insolvency risk of a restructured Calfrac would increase further, especially as the interest on this new debt is paid in kind.
  • Amended Management Transaction is Incapable of being Implemented. The structure of the amended Management Transaction will, in Wilks' view, violate the terms of Calfrac's existing debt instruments and therefore cannot be completed without the consent of the holders of Calfrac's second lien debt. Second lien lenders will not provide this necessary consent, and the transaction is therefore not capable of being completed. Any attempt to implement the transaction will be vigorously contested.
  • Wilks' Premium Offer Survives a CCAA Filing by Calfrac. Calfrac has now made its implicit threat of a CCAA filing that provides no recovery to the shareholders, explicit. However, contrary to Calfrac's assertions, Wilks has committed to Calfrac shareholders that the Premium Offer will be available even if Calfrac files for protection under the CCAA. This was clearly stated in the take over bid circular and Calfrac's attempts to mischaracterize the Offer should be ignored. Pursuant to its terms, the value under the Wilks Premium Offer will be available to shareholders in a CCAA restructuring because it will be paid by Wilks directly to shareholders, and not Calfrac. The relative rankings and rights of debt and equity in Calfrac are, therefore, completely irrelevant.
  • Calfrac Insiders Continue to be Disproportionately Benefitted. All of the defects in the original Management Transaction relative to the participation of insiders still exist and, remarkably, benefits to insiders are enhanced in the amended Management Transaction. Mr. Mathison (through MATCO) is the only participant whose pro forma share of the equity of the restructured Calfrac actually increases!

Announcement of Amended Management Transaction Accelerates the Premium Offer

Wilks will also now fast track its application for the exemptive relief from the Canadian securities regulators regarding the "Statutory Minimum Condition", should such exemption even be required.  In the current circumstances, Wilks is confident that any such application will be granted and, in any event, it is possible that the waiver of the condition will not be required as Wilks anticipates shareholders will enthusiastically participate in the Premium Offer.

In the coming days Wilks will be providing additional commentary and analysis to the market regarding the amended Management Transaction and will be communicating with shareholders further concerning its Premium Offer. 

The amended Management Transaction does not change anything.  The course of action for Calfrac shareholders remains crystal clear: You should preserve your unobstructed path to a premium recovery by voting AGAINST and defeating the coercive, insider-led Management Transaction.

Click here for voting instructions or learn more at www.afaircalfrac.com.

As Calfrac has postponed the special meeting of shareholders once again, the deadline to submit your BLUE proxies has been extended to October 13, 2020 at 11:59 p.m. MST. If you have already voted AGAINST the Management Transaction using the BLUE proxy, you do not need to do anything further and we thank you for your support.

If you have yet to vote or want to change your vote, you are encouraged to vote using only the BLUE proxy. Please disregard any other proxies you receive. If you have already submitted a proxy solicited by Management, you may still change your vote and protect your economic interests by voting your BLUE proxy today. The later dated proxy will supersede any earlier proxy submitted.

Need help voting? Please contact Laurel Hill Advisory Group as noted below.

QUESTIONS/ VOTING/ TENDERING ASSISTANCE

Shareholders who have questions or require voting or tendering assistance, may contact our communications advisor, proxy solicitation agent, information agent and depositary, Laurel Hill Advisory Group, by phone, toll-free at 1-877-452-7184 (North America) or +1-416-304-0211 (outside North America) or by e-mail at [email protected].

NOTICE

THIS ANNOUNCEMENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE OR FORM PART OF THE OFFER OR AN INVITATION TO PURCHASE, OTHERWISE DISPOSE OF OR A SOLICITATION OF AN OFFER TO SELL, ANY SECURITY. WILKS HAS FILED A TAKE-OVER BID CIRCULAR AND RELATED MATERIALS WITH VARIOUS SECURITIES COMMISSIONS IN CANADA PURSUANT TO WHICH THE OFFER IS MADE. THE TAKE-OVER BID CIRCULAR CONTAINS IMPORTANT INFORMATION ABOUT THE OFFER AND SHOULD BE READ IN ITS ENTIRETY BY CALFRAC SHAREHOLDERS AND OTHERS TO WHOM THE OFFER IS ADDRESSED. CALFRAC SHAREHOLDERS (AND OTHERS) WILL BE ABLE TO OBTAIN, AT NO CHARGE, A COPY OF THE OFFER TO PURCHASE, TAKE-OVER BID CIRCULAR AND VARIOUS ASSOCIATED DOCUMENTS ON THE SYSTEM FOR ELECTRONIC DOCUMENT ANALYSIS AND RETRIEVAL (SEDAR) AT WWW.SEDAR.COM. THE OFFER WILL NOT BE MADE IN, NOR WILL DEPOSITS OF SECURITIES BE ACCEPTED FROM A PERSON IN, ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER, WILKS MAY, IN ITS SOLE DISCRETION, TAKE SUCH ACTION AS IT DEEMS NECESSARY TO EXTEND THE OFFER IN ANY SUCH JURISDICTION.

ADDITIONAL DISCLOSURE

Wilks is relying on the exemption under section 9.2(4) of National Instrument 51-102 - Continuous Disclosure Obligations and exemptive relief provided by the Alberta Securities Commission in an Order dated August 4, 2020 (the "Order") to make this public broadcast solicitation. The following information is provided in accordance with corporate and securities laws applicable to public broadcast solicitations. This solicitation is being made by Wilks, and not by or on behalf of the management of Calfrac. Wilks has engaged Laurel Hill Advisory Group to act as our communications advisor and proxy solicitation agent.

Based upon publicly available information, Calfrac's registered office is at 4500, 855-2nd Street S.W. Calgary, Alberta, Canada, T2P 4K7, and its head office is at 411-8th Avenue S.W. Calgary, Alberta, Canada, T2P 1E3. Wilks is soliciting proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws (including the Order), conveyed by way of public broadcast, including press release, speech or publication, and by any other manner permitted under applicable Canadian laws. In addition, this solicitation may be made by mail, telephone, facsimile, email or other electronic means as well as by newspaper or other media advertising and in person. All costs incurred for the solicitation will be borne by Wilks.

Wilks and Dan and Staci Wilks together hold 28,720,172 Common Shares, representing approximately 19.78% of the issued and outstanding Common Shares of Calfrac on the basis of Calfrac's disclosure in its management information circular dated August 17, 2020. that there are 145,616,827 Common Shares outstanding.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain information in this Press Release may constitute "forward-looking information", as such term is defined in applicable Canadian securities legislation, about the objectives of Wilks as they relate to Calfrac. All statements other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions.

Material factors or assumptions that were applied in providing forward-looking information include, but are not limited to: the intention of Wilks to make a formal take-over bid for the shares of Calfrac and the results of such bid; that required regulatory approvals will be obtained on terms satisfactory to Wilks; the reaction of Calfrac's Board and management to the Bid; the response to and outcome of any applications to Courts or regulators relating to the transactions described herein or otherwise that may be made by or against Calfrac or Wilks; the intention of Wilks to apply to securities regulators for discretionary relief from certain statutory requirements applicable to the bid and the results of such application.

Forward-looking information contained in this Press Release reflects current reasonable assumptions, beliefs, opinions and expectations of Wilks regarding future events and operating performance of Calfrac and speaks only as of the date of this  Press Release. Such forward-looking information is based on currently publicly available competitive, financial and economic data and operating plans and is subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Calfrac, or general industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Many other factors could also cause Calfrac's actual results, performance or achievements to vary from those expressed or inferred herein, including, without limitation, the success of the proposed Premium Offer, the reaction of the market and Calfrac's shareholders, creditors and customers to the Premium Offer, the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; the financial markets in general; price volatility; interest rate and exchange rate fluctuations; general economic conditions and other risks involved in the hydraulic fracking industry. The impact of any one factor on a particular piece of forward-looking information is not determinable with certainty as such factors are interdependent upon other factors, and Wilks' course of action would depend upon its assessment of the future considering all information then available.

Should any factor affect Calfrac in an unexpected manner, or should any assumptions underlying the forward-looking information prove incorrect, the actual results or events may differ materially from the events predicted. All of the forward-looking information reflected in this Press Release is qualified by these cautionary statements. There can be no assurance that the results or developments anticipated by Wilks will be realized or, even if substantially realized, that they will have the expected consequences for Calfrac, Calfrac's shareholders or Wilks. Forward-looking information is provided, and forward-looking statements are made as of the date of this Press Release and except as may be required by applicable law, Wilks disclaims any intention and assumes no obligation to publicly update or revise such forward-looking information or forward-looking statements whether as a result of new information, future events or otherwise. Nothing herein shall be deemed to be an acknowledgement or acceptance by Wilks that the terms of the amended Management Transaction are legally permissible, appropriate or capable of implementation.

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/changes-to-calfrac-management-transaction-fall-woefully-short-of-shareholder-recoveries-under-wilks-premium-offer-301138036.html

SOURCE Wilks Brothers, LLC.