SPNV stock (OTCQX) is exploding higher after the company announced a sweet strategic transaction.
Superior Energy Services, Inc. (NYSE: SPN; OTCQX: SPNV) today announced that it has entered into a definitive agreement to divest its U.S. service rig, coiled tubing, wireline, pressure control, flowback, fluid management and accommodations service lines (the “Superior Energy U.S. Business”) and combine them with Forbes Energy Services Ltd.’s (“Forbes”) (OTCQX: FLSS) complementary service lines to create a new, publicly traded consolidation platform for U.S. completion, production and water solutions.
Following the completion of the transaction, Superior Energy will remain a globally diversified oilfield services company built around the following key product and service lines: premium drill pipe, bottom hole assemblies, completion tools and products, hydraulic workover, snubbing and production services and well control services. These product lines have strong global market share positions, and greater than 75% of their combined revenue during the third quarter of 2019 was generated from U.S. offshore and international markets.
Under the terms of the merger agreement, the Superior Energy U.S. Business and Forbes will be merged into a newly formed company (“Newco”). At the closing of the transaction, Superior Energy will receive 49.9% of Newco’s issued and outstanding voting Class A common stock (“Class A Stock”) and 100% of Newco’s issued and outstanding non-voting Class B common stock, which will collectively represent an approximate 65% economic interest in Newco. Forbes shareholders will receive 50.1% of the Class A Stock, representing an approximate 35% economic interest in Newco. Forbes’ economic interest in Newco is subject to adjustment within certain parameters based on its net debt position at closing. In addition, certain lenders under Forbes’ existing term loan (the “Forbes Term Loan”) will exchange their portion of the Forbes Term Loan for approximately $30 million in newly issued mandatory convertible preferred shares of Newco (the “Preferred Shares”), which will be entitled to cash dividends at a rate of 5% per annum, payable semi-annually. After giving effect to the conversion of the Preferred Shares, Superior Energy would own a 52% economic interest and Forbes shareholders would own a 48% economic interest in Newco. The Preferred Shares will be subject to mandatory conversion into Class A Stock at the third anniversary of the closing of the transaction. Newco will repay the balance of the Forbes Term Loan at closing.
The transaction, which is expected to close in the first quarter of 2020, has been unanimously approved by the Board of Directors of each of Superior Energy and Forbes and unanimously approved by the special committee of the Board of Forbes.
Dave Dunlap, CEO of Superior Energy commented, “Superior Energy will now be focused on international and offshore markets, allowing investors to more accurately assess the value of what we believe to be a highly differentiated public company in the oil field service space. We believe this transaction, which reduces debt, and lowers interest costs, is a meaningful step towards our goal of improving our ability to generate free cash flow.”
“The Company and its shareholders will have a meaningful equity ownership position in a U.S. land service consolidation vehicle that will operate with a light capital spending profile, and is positioned to generate free cash flow. We believe that there are opportunities to reduce corporate costs, improve asset management, and increase free cash flow generation through increased industry consolidation.”
“In connection with this transaction, we intend to reduce the amount of 2021 notes outstanding by up to $500 million by (1) reducing Superior Energy’s total debt by $250 million through the issuance of Newco notes and (2) extending the maturity of up to another $250 million of Superior Energy 2021 notes.”
“A lot of hard work went into the planning and execution of this transaction, and I am extremely proud of our entire team. I will be leaving Superior Energy to become the CEO of Newco, and Westy Ballard will succeed me as Superior Energy’s new President and CEO. Westy’s appointment is the result of our Board’s comprehensive and continuous succession planning process. With a proven track record of success in global operations, finance and strategy, Westy is the right leader for the Company as it enters this exciting new phase.”
Compelling Strategic and Financial Benefits of the Transactions:
- Superior Energy is a unique, offshore and internationally focused company: More than 75% of Superior Energy’s third quarter 2019 revenue was derived from offshore and international markets, and its remaining U.S. land revenue is predominantly rental oriented.
- Low capital expenditure profile: Superior Energy’s initial 2020 pro forma capital expenditures estimate is in a range of $70-$80 million. It is anticipated that 2020 capital expenditures for Newco will be less than $25 million.
- Greater Scale and Significant Synergies: Newco expects to generate annualized run-rate cost synergies of approximately $23 million within a year after closing the transaction. Additionally, its sizable, long-life asset base will allow Newco to be extremely competitive across most U.S. oil and gas basins.
- Leadership and Governance
Newco will be led by David Dunlap as CEO and Brian Moore as COO. Newco’s headquarters will be in Houston and will have support services provided to it by Superior Energy for up to two years under a transition services agreement. Mr. Dunlap is expected to also serve as Chairman of a four-person board of directors, with other board members to be identified before the transaction is closed. Following the closing of the transaction, Newco will operate under a new corporate name and ticker symbol.
Superior Energy’s current Chief Financial Officer, Westy Ballard, will become President and CEO of Superior Energy upon completion of the transaction. The Company’s current Chief Accounting Officer, Jamie Spexarth, will assume the title of Chief Financial Officer and Treasurer of Superior Energy.