TIDMTGL
RNS Number : 6836Z
TransGlobe Energy Corporation
16 September 2022
TransGlobe Board Unanimously Continues to and Proxy Advisor ISS
Recommends That Shareholders Vote FOR The Proposed Business
Combination with VAALCO
TransGlobe Responds to Spurious Claims That Misrepresent the
Combination with VAALCO
Calgary, Alberta (September 16, 2022) - TransGlobe Energy
Corporation (TSX: TGL) ("TransGlobe" or the "Company") today issued
the following statement in response to press releases issued by
Horizon Partners ("Horizon") on 13 and 14 September 2022 concerning
TransGlobe's unanimously recommended all-share business combination
(the "Proposed Transaction") with VAALCO Energy, Inc. (NYSE: EGY;
LSE:EGY) ("VAALCO").
While TransGlobe welcomes constructive strategic input focused
on enhancing shareholder value, TransGlobe firmly believes the
assertions in Horizon's press release to be selective and
misleading in its presentation of the facts. The Company therefore
recommends that shareholders disregard Horizon's claims and the
TransGlobe Board of Directors (the "TransGlobe Board") continues to
unanimously recommend that shareholders vote FOR the Proposed
Transaction. TransGlobe makes the following observations:
-- The Effective Date Adjustment is Unlikely to Result in USD
67.5 Million Cash Receipts for TransGlobe
-- A Break-Up of the Company Via a Sale of Canada at This Time
as Proposed by Horizon Will Destroy Value for TransGlobe
Shareholders
-- Horizon's Comparison of VAALCO and TransGlobe Reserves is Fundamentally Flawed
-- Horizon's Suggestion of a CAD 9.11 to CAD 9.73 Per Share
Value of TransGlobe is Unrealistic and a Misleading Basis for
Making Strategic Decisions
-- The Proposed Transaction Reduces Risk and Creates Value for
TransGlobe Shareholders, Contrary to What Horizon is Suggesting
-- Leading Proxy Advisor ISS Recommends TransGlobe Shareholders
Vote FOR the Proposed Transaction with VAALCO
Dave Cook, Chairman of TransGlobe, commented:
"TransGlobe shareholders should reject Horizon's efforts to
misrepresent the transaction and impose short-termism and financial
engineering, which will be disruptive to TransGlobe's business
strategy and have negative consequences for the Company, its
stakeholders and shareholder value.
"The Board of Directors of TransGlobe continues to unanimously
support the combination with VAALCO which offers shareholders a
compelling value creation opportunity and considers the combination
to be in the best interests of the Company and all shareholders. We
are very pleased that ISS has endorsed this transaction and
encourage TransGlobe shareholders to vote FOR the combination of
TransGlobe and VAALCO. "
1. Effective Date Adjustment is Unlikely to Result in USD 67.5
Million of Cash Receipts for TransGlobe
TransGlobe has previously noted that while a USD 67.5 million
receivable in relation to the effective date adjustment for the
Egypt Merged Concession has been recognised as a receivable on
TransGlobe's balance sheet as of 31 March 2022, the specific
quantum of the effective date adjustment and the method for
realising this value is still being finalised with the Egyptian
General Petroleum Corporation ("EGPC"). Further, the schedule for
realising value from the effective date adjustment is not yet
determined and is likely to materialise over time in the form of
offsets for materials and services provided to TransGlobe from EGPC
owned / affiliated companies, through the receipt of Egyptian
Pounds and through possible over-lifting from ongoing operations
rather than a one-time cash payment from EGPC. In addition, the
statements made fail to recognize that TransGlobe is required to
make a total modernization payment of USD 40 million to EGPC in
compensation for the Eastern Desert Merged Concession agreement
over the next four years as well as fund minimum work obligations
on an ongoing basis. As such, it is highly unlikely that TransGlobe
will be able to contribute USD 67.5 million, from the collection of
the effective date adjustment, towards a cash payment to TransGlobe
shareholders in the next 12 months.
Notwithstanding the above, the entire balance of USD 67.5
million receivable has been captured in the business combination
relative valuation analysis, with TransGlobe's shareholders
receiving the full and appropriate benefit of this value item in
the exchange ratio.
2. A Break-Up of the Company Via a Sale of Canada as Proposed by
Horizon Will Destroy Value for TransGlobe Shareholders
Horizon has proposed that TransGlobe sell its Canadian business
and that proceeds from such a sale can be returned to shareholders.
The TransGlobe Board regularly evaluates and tests the Company's
strategic alternatives, including a separation of the Company's
businesses in Egypt and Canada, and is of the firm view that a
break-up of the Company at this time and in its current form will
be detrimental to shareholder value.
TransGlobe considers Horizon's desktop analysis of the potential
proceeds from a sale of the Canadian assets to be overly simplistic
in its conclusions, and notes the following:
i. Based on feedback from industry specialists and potential
buyers, the resource base in TransGlobe's Canadian assets needs to
be matured further through drilling in order to make the assets
attractive to the broadest group of buyers and achieve the highest
price. This will require additional time as well as capital
investment; and
ii. A sale of the Canadian assets would burden TransGlobe's
Egyptian operations with additional costs, due to significant
resources currently being shared between the Canadian and Egyptian
operations;
Further, there are additional intangible factors that could
negatively impact value in a break-up of the stand-alone Company.
Horizon has ignored these factors in its proposals, as it is simply
focused on stripping out cash from the business, rather than on
creating value on a sustainable basis for ALL shareholders. Horizon
makes no mention of the fact that a break-up would significantly
reduce the size of TransGlobe in the public equity markets, making
it harder for the Company to attract institutional equity capital
and impacting the valuation multiple of the remaining assets in
Egypt. In addition, a break-up would make it more difficult for
TransGlobe to attract and retain talent, as the resulting entity
would be a smaller, Egypt only business that would be significantly
less attractive as an employer.
On the other hand, the Proposed Transaction with VAALCO would
create a larger, more diversified business with a stronger
financial foundation (the "MergeCo") that would significantly
enhance optionality to high-grade capital allocation within the
combined portfolio. Further, by combining these two companies there
is the potential to realize operational synergies, with USD 30
million to USD 50 million in anticipated cost savings through 2030
that would not otherwise be possible. As the Proposed Transaction
involves a share-for-share exchange, TransGlobe shareholders will
continue to have exposure to the combined value upside and cash
flow generation potential of MergeCo. In addition, Horizon's
suggestion ignores the secondary benefits of such a combination.
Shareholders in MergeCo should benefit from a more liquid
investment with more shares traded on the New York Stock Exchange
and LSE, and increased visibility in the public capital markets.
With larger peers on average trading at higher multiples, the
increased size as a result of the combination has the potential to
unlock a higher combined market valuation should higher multiples
be realized. A recommendation to break up TransGlobe's assets
ignores the diversification and combination benefits, concentrating
risk for TransGlobe shareholders.
3. Horizon's Comparison of VAALCO and TransGlobe Reserves is Fundamentally Flawed
In making its assessment of the value of VAALCO's assets,
TransGlobe has conducted significant due diligence, deploying a
highly experienced team of subsurface, operational and commercial
experts with prior experience of VAALCO's assets and geographies of
operation.
However, Horizon in its analysis makes a selective comparison of
TransGlobe and VAALCO's reserves, which reflects an incomplete
understanding of the valuation of these oil and gas companies. The
total risked-weighted value of the development of resources should
be considered, factoring in potential reserves additions, expected
success rates, as well as the costs of finding, developing and
producing each unit of reserves and the significantly different
taxation regimes applicable to each company's production. In the
case of TransGlobe and VAALCO, there are significant differences in
the process of converting contingent resources in reserves, due
principally to the geological setting of those resources. The
Company undertook a detailed analysis of VAALCO's assets in
arriving at its assessment of relative fair value.
Horizon further goes on to make several unfounded statements
with respect to the public market value of VAALCO, without
providing sufficient justification for its statements. VAALCO in
TransGlobe's view has a long and highly successful track record of
consistently replacing and growing its reserves in Gabon and
creating value with the drill-bit, with public market investors
recognising such value creation with a 428% appreciation in its
share price in the two-year period to 13-July-2022 (being the date
of the arrangement agreement between the Company, VAALCO and VAALCO
Energy Canada ULC).
4. Horizon's Suggestion of a CAD 9.11 to CAD 9.73 Per Share
Value of TransGlobe is Unrealistic and Presents a Misleading Basis
for Making Strategic Decisions
While TransGlobe's Board is focused on maximising shareholder
value, it is realistic with respect to the current value of the
Company in relation to assessing and executing the Company's
strategic options. Horizon's valuation estimate of CAD 9.11 to CAD
9.73 per TransGlobe share is significantly in excess of
TransGlobe's own assessment of its value and any recognised
benchmark in the market, and cannot therefore be the basis of any
objective and robust strategic assessment.
TransGlobe agreed the exchange ratio for the Proposed
Transaction with VAALCO after extensive due diligence and
negotiation, and taking into account multiple benchmarks of value,
both from a bottom-up asset value perspective as well as
market-related data points. The account of this analysis is
documented extensively in the Company's management information
circular to TransGlobe shareholders. Given the Proposed Transaction
involves a share-for-share exchange, the analysis was conducted on
a relative valuation basis, as TransGlobe shareholders would
continue to hold exposure to the combined value upside and cash
flow generation potential of MergeCo. In addition, the TransGlobe
Board sought and obtained a fairness opinion from reputed
independent financial advisor Evercore regarding the agreed
exchange ratio. The fairness opinion concluded that the
consideration to be received by TransGlobe Shareholders pursuant to
the arrangement is fair, from a financial point of view, to
TransGlobe shareholders.
5. The Proposed Transaction Reduces Risk and Creates Value for
TransGlobe Shareholders, Contrary to Horizon's Suggestion
TransGlobe strongly disagrees with the notion expressed by
Horizon that the Proposed Transaction increases risk for TransGlobe
shareholders. The business combination of TransGlobe and VAALCO
brings together two complementary businesses, spanning multiple
geographies and assets, diversifying production and revenue and
creating an entity with greater scale and a stronger balance sheet.
MergeCo will be in a better position relative to each of TransGlobe
and VAALCO on a standalone basis to deliver shareholder returns on
a more sustainable basis through commodity price cycles.
As an activist investor, Horizon's conclusions are based on an
analysis that is focused on short-term objectives, irrespective of
the risks that such an approach creates for TransGlobe, its
shareholders and broader stakeholder constituencies. MergeCo will,
however, be focused on creating a robust foundation for value
creation on a sustainable basis, year after year, that is
underpinned by a strategic and financial framework that delivers
industry best in class shareholder returns. MergeCo has outlined a
sustainable shareholder returns framework that targets a USD 28
million dividend per annum, to be supplemented by a share buyback
of up to USD 30 million to be commenced promptly post completion of
the Proposed Transaction, as well as potential additional
supplemental shareholder returns via special distributions.
6. ISS Recommends TransGlobe Shareholders Vote FOR the Proposed Transaction with VAALCO
TransGlobe is pleased to note the report issued by a leading
proxy advisor, Institutional Shareholder Services ("ISS") and its
unanimous recommendation that its institutional clients vote FOR
the proposed business combination of TransGlobe and VAALCO to
create a world-class African-focused E&P company.
TransGlobe welcomes the findings and analysis from ISS noting
the "solid strategic rationale" for the combination and the
potential upside MergeCo provides, with shareholders benefiting
from "a more diversified set of operating assets and attractive
opportunities for capital allocation."
ISS is the world's leading provider of corporate governance and
responsible investment solutions, market intelligence, fund
services, and events and editorial content for institutional
investors and corporations, globally. ISS's recommendations are in
line with the TransGlobe Board's unanimous approval of the Proposed
Transaction which creates a world-class African-focused E&P
supporting sustainable shareholder returns and growth.
Based on the assessment above, it is clear that the claims
issued by Horizon are without merit and that Horizon is advocating
a strategy for its own short-term objectives and without regard to
the interests of ALL TransGlobe shareholders. TransGlobe therefore
recommends that shareholders should disregard Horizon's claims and
vote FOR the Proposed Transaction.
Information About the Shareholder Meeting
The virtual-only TransGlobe shareholder Meeting (the "Meeting")
will take place on September 29, 2022, at 9:00 a.m. (Calgary time)
https://web.lumiagm.com/#/201458342
Shareholders of TransGlobe are reminded to submit proxies in
advance of the Meeting by 9:00 a.m. (Calgary time) on September 27,
2022.
Shareholders of TransGlobe may also contact TransGlobe's proxy
solicitation agent, D.F. King & Co., Inc., by phone toll-free
at (888) 540-8736 (banks and brokers only at (212) 269-5550) or by
email at tga@dfking.com.
Shareholders should closely review the procedures outlined in
the management information circular (the "Information Circular")
and related meeting materials for the Meeting (the "Meeting
Materials") to ensure that they are able to cast their vote prior
to or at the Meeting. The Meeting Materials have been filed by the
Company on SEDAR and are available under the Company's profile at
www.sedar.com. The Meeting Materials are also available on the
Company's website
https://www.trans-globe.com/investors/investor-resources/default.aspx#regulatory
For further information, please contact:
TransGlobe Energy Corporation
Randy Neely, President and CEO
Eddie Ok, CFO
+1 403 264 9888
investor.relations@trans-globe.com
http://www.trans-globe.com
or via Tailwind Associates
Evercore Partners International LLP (Financial Advisor)
David Waring
Aditya Lohia
Andrew MacNiven
+44 20 7653 6000
Tailwind Associates (Investor Relations)
Darren Engels
+1 403 618 8035
darren@tailwindassociates.ca
http://www.tailwindassociates.ca
Canaccord Genuity (Nomad & Joint-Broker)
Henry Fitzgerald-O'Connor
Gordon Hamilton
+44(0) 20 7523 8000
Shore Capital (Joint Broker)
Toby Gibbs
John More
+44(0) 20 7408 4090
DF King
Richard Grubaugh
+1 212 493 6950
tga@dfking.com
Camarco (Financial PR)
Billy Clegg
Georgia Edmonds
Emily Hall
+4420 3757 4986
TransGlobe@camarco.co.uk
About TransGlobe
TransGlobe Energy Corporation is a cash flow focused oil and gas
exploration and development company whose current activities are
concentrated in the Arab Republic of Egypt and Canada. TransGlobe's
common shares trade on the Toronto Stock Exchange and the AIM
market of the London Stock Exchange under the symbol TGL and on the
NASDAQ Exchange under the symbol TGA.
Forward-Looking Statements
This document includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), Section 21E of the Securities Exchange Act
of 1934, as amended, which are intended to be covered by the safe
harbors created by those laws and other applicable laws and
"forward-looking information" within the meaning of applicable
Canadian securities laws. Where a forward-looking statement
expresses or implies an expectation or belief as to future events
or results, such expectation or belief is expressed in good faith
and believed to have a reasonable basis. All statements other than
statements of historical fact may be forward-looking statements.
The words "anticipate," "believe," "estimate," "expect," "intend,"
"forecast," "outlook," "aim," "target," "will," "could," "should,"
"may," "likely," "plan" and "probably" or similar words may
identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking.
Forward-looking statements in this document include, but are not
limited to, statements relating to (i) the potential impact on
TransGlobe of Horizon's assertions; (ii) timing to realise the
value of the effective date adjustment with the EGPC; (iii)
industry conditions of the Canadian resource base; (iv) the
negative impacts of the a break-up of the Company; (v) the benefits
to be derived from the Proposed Transaction; (vi) expectations
generally and of future plans, priorities and focus of MergeCo;
(vii) expectations regarding meaningful and sustainable shareholder
returns of MergeCo; and (viii) timing of the Meeting.
Such forward-looking statements are subject to risks,
uncertainties and other factors, which could cause actual results
to differ materially from future results expressed, projected or
implied by the forward-looking statements. These risks and
uncertainties include, but are not limited to: the ability to
obtain stockholder, shareholder, court and regulatory approvals, if
any, of the Proposed Transaction; the ability to complete the
Proposed Transaction on anticipated terms and timetable; the
possibility that various closing conditions for the transaction may
not be satisfied or waived; risks relating to any unforeseen
liabilities of VAALCO or TransGlobe; the tax treatment of the
Arrangement in the United States and Canada; declines in oil or
natural gas prices; the level of success in exploration,
development and production activities; adverse weather conditions
that may negatively impact development or production activities;
the timing and costs of exploration and development expenditures;
inaccuracies of reserve estimates or assumptions underlying them;
revisions to reserve estimates as a result of changes in commodity
prices; impacts to financial statements as a result of impairment
write-downs; the ability to generate cash flows that, along with
cash on hand, will be sufficient to support operations and cash
requirements; the ability to attract capital or obtain debt
financing arrangements; currency exchange rates and regulations;
actions by joint venture co-owners; hedging decisions, including
whether or not to enter
into derivative financial instruments; international, federal
and state initiatives relating to the regulation of hydraulic
fracturing; failure of assets to yield oil or gas in commercially
viable quantities; uninsured or underinsured losses resulting from
oil and gas operations; inability to access oil and gas markets due
to market conditions or operational impediments; the impact and
costs of compliance with laws and regulations governing oil and gas
operations; the ability to replace oil and natural gas reserves;
any loss of senior management or technical personnel; competition
in the oil and gas industry; the risk that the Proposed Transaction
may not increase MergeCo's relevance to investors in the
international E&P industry, increase capital market access
through scale and diversification or provide liquidity benefits for
stakeholders; and other risks described (i) under the caption "Risk
Factors" in VAALCO's 2021 Annual Report on Form 10-K filed with the
SEC on March 11, 2022; U.S. Securities and Exchange Commission (the
"SEC") on March 11, 2022; (ii) VAALCO's Quarterly Report on Form
10-Q for the quarter ended June 30, 2022 filed with the SEC on
August 10, 2022; (iii) in TransGlobe's 2021 Annual Report on Form
40-F, filed with the SEC on March 17, 2022 or TransGlobe's annual
information form for the year ended December 31, 2021 dated March
17, 2022; and (iv) the Information Circular. TransGlobe is not
affirming or adopting any statements or reports attributed to
VAALCO (including oil and gas reserves information) in this
document or made by VAALCO outside of this document. There may be
additional risks that TransGlobe presently does not know, or that
TransGlobe currently believes are immaterial, that could also cause
actual results to differ from those contained in the
forward-looking statements. In addition, forward-looking statements
reflect TransGlobe's expectations, plans or forecasts of future
events and views as of the date of this document. Should one or
more of these risks or uncertainties materialize, or should any of
the assumptions prove incorrect, actual results may vary in
material respects from those projected in these forward-looking
statements. No obligation is being undertaken to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required
under applicable securities laws.
Certain Assumptions Relating to Forward Looking Statements
Forward-looking statements or information are based on a number
of factors and assumptions which have been used to develop such
statements and information but which may prove to be incorrect.
Although TransGlobe believes the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements because
TransGlobe can give no assurance that such expectations will prove
to be correct. Many factors could cause actual results to differ
materially from those expressed or implied in any forward-looking
statements contained herein.
In addition to other factors and assumptions which may be
identified in this document, assumptions have been made regarding,
among other things, anticipated production volumes; the timing of
receipt of regulatory and shareholder approvals for the
arrangement; the ability of the combined business to realize the
anticipated benefits of the arrangement; ability to effectively
integrate assets and property as a result of the Proposed
Transaction; ability to obtain qualified staff and equipment in a
timely and cost-efficient manner; regulatory framework governing
royalties, taxes and environmental matters in the jurisdictions in
which TransGlobe and VAALCO conducts and the combined business will
conduct its business; future capital expenditures; future sources
of funding for capital programs; current commodity prices and
royalty regimes; future exchange rates; the price of oil; the
impact of increasing competition; conditions in general economic
and financial markets; availability of drilling and related
equipment; effects of regulation by governmental agencies; future
operating costs; uninterrupted access to areas of operation and
infrastructure; recoverability of reserves and future production
rates; the combined business will have sufficient cash flow, debt
and equity sources or other financial resources required to fund
its capital and operating expenditures and requirements as needed;
results of operations will be consistent with expectations; current
or, where applicable, proposed industry conditions, laws and
regulations will continue in effect; the estimates of reserves and
resource volumes and the assumptions related thereto are accurate
in all material respects; and other matters.
No Offer or Solicitation
This document shall not constitute a solicitation of a proxy,
consent or authorization with respect to any securities or in
respect of the Proposed Transaction. This announcement is for
information purposes only and shall not constitute a recommendation
to participate in the Proposed Transaction or to purchase any
securities. This document does not constitute an offer to sell or
issue, or the solicitation of an offer to buy, acquire or subscribe
for any securities in any jurisdiction, nor shall there be any sale
of securities in any states or jurisdictions in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus meeting the requirements of section 10 of the Securities
Act, or by means of a prospectus approved by the Financial Conduct
Authority, or an exemption therefrom.
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END
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