STEP Energy Services Ltd. (“STEP” or the “Company”) is pleased to announce that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with 2659160 Alberta Ltd. and the limited partnerships comprising ARC Energy Fund 8 (a private equity fund advised by ARC Financial Corp.) (collectively, “ARC”) to take the Company private in an all-cash transaction.
Under the terms of the Arrangement Agreement, ARC will acquire all of the issued and outstanding common shares of STEP (the “Shares“) that ARC (and ARC Energy Fund 6) does not currently own or control or direct, directly or indirectly, (the “Minority Shares”) for cash consideration of $5.00 per Share by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Alberta) (the “Act“).
The Arrangement, which has been unanimously approved by STEP’s board of directors (the “Board”) entitled to vote thereon, will be subject to shareholder approval, including the approval of the holders of the Minority Shares (the “Minority Shareholders”), court approval, and customary closing conditions. The Arrangement is expected to close in December 2024.
Steve Glanville, President and CEO of STEP, commented, “As one of the founding members of STEP, I have seen the Company develop into one of the best-in-class energy services companies in North America. We have successfully navigated the organization from our initial start-up days to the IPO in 2017 and through numerous industry cycles. We have remained committed to our clients, communities, and our dedicated employees, who we call professionals. We are tremendously proud of the company we have built. STEP has consistently explored avenues to maximize value for our shareholders, which has led to the proposed transaction. We believe this is in the best interests of STEP. We would like to thank STEP shareholders for their support over the years.”
Highlights Of the Arrangement
Significant Premium
The purchase price represents a premium of approximately 40% to STEP’s November 1, 2024 closing price on the TSX.
All Cash Consideration
The purchase price payable to Minority Shareholders upon closing of the Arrangement will be paid in cash.
Independent Valuation
In connection with the Arrangement, STEP obtained a formal valuation of the Shares as at October 31, 2024 from Ernst & Young LLP (“EY”), an independent valuator. The purchase price is in the upper third of the fair market value range of $4.40 to $5.30 per Share, as determined by EY.
Unanimous Board Approval
The members of the Board entitled to vote on the Arrangement unanimously support the Arrangement, and recommend that the Minority Shareholders vote in favour of the Arrangement resolution at the special meeting of holders of Shares to be called and held to approve the Arrangement (the “STEP Meeting“).
No financing condition
The Arrangement is not conditional on ARC obtaining financing.
Special Committee and Board Recommendation
The Board formed a special committee of independent directors (the “Special Committee”) to consider an initial proposal from ARC to acquire all of the Shares held by Minority Shareholders, as well other alternatives available to STEP, and, if deemed advisable, to negotiate with ARC a proposed transaction for ARC to acquire all of the Minority Shares. Following a comprehensive review of the ARC proposal, the receipt of the formal valuation from EY as to the fair market value of the Shares, the receipt of advice from its financial and legal advisors, negotiations between the Special Committee and ARC as to the purchase price per Share and other terms of the Arrangement, and the receipt of a fairness opinion from EY in respect of the fairness, from a financial point of view, of the consideration to be received by the Minority Shareholders under the Arrangement, the Special Committee unanimously determined that the Arrangement is in the best interests of STEP and recommended that the Board approve the execution and delivery of the Arrangement Agreement and recommend that Minority Shareholders vote in favour of the Arrangement.
After considering, among other things, the unanimous recommendation of the Special Committee and the receipt of advice from its legal advisors, the Board (with Mr. Jeremy Gackle, a representative of ARC, abstaining) unanimously determined that the Arrangement is in the best interests of STEP and is fair to the Minority Shareholders, approved the execution and delivery of the Arrangement Agreement, and recommends that the Minority Shareholders vote in favour of the Arrangement resolution at the STEP Meeting.
Opinion and Formal Valuation
In connection with its review of the Arrangement, the Special Committee retained EY as its independent valuator and requested that EY prepare a formal valuation of the Shares in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101“). In addition to its formal valuation of the Shares, EY has also delivered a fairness opinion as of October 31, 2024, stating that, subject to the assumptions, limitations and qualifications set forth in EY’s written fairness opinion, the consideration to be received by the Minority Shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Minority Shareholders.
Arrangement Details
The Arrangement is subject to customary TSX and court approvals and the following approvals at the STEP Meeting: (a) the approval of at least 66 2/3% of the votes cast by holders of the Shares (the “Shareholders“); and (b) the approval of at least a majority of the votes cast by Shareholders, excluding votes of ARC (and ARC Energy Fund 6) and any other holders of Shares whose votes are required to be excluded for the purposes of such vote under MI 61-101. For the purposes of this “majority of the minority” approval requirement under MI 61-101, 40,243,000 Shares controlled, directly or indirectly, by ARC and ARC Energy Fund 6 will be excluded from voting.
The STEP Meeting is expected to be held on December 19, 2024. Additional information regarding the Arrangement and how Voting Securityholders can participate in and vote at the STEP Meeting will be provided in a STEP information circular (the “Circular”), which is expected to be mailed to Shareholders on or about November 27, 2024. EY’s formal valuation report and fairness opinion will be included in the Circular. EY believes that its report and opinion must be read in their entirety to understand the valuation process and valuation results and fairness opinion.
All members of the Board and STEP’s officers, who collectively own directly or indirectly or exercise control or direction over approximately 1.27% of the outstanding Shares, and ARC Energy Fund 6, which exercises control or direction over approximately 18.93% of the outstanding Shares, have entered into support agreements pursuant to which they have agreed, subject to the provisions thereof, to vote in favour of the resolution approving the Arrangement at the STEP Meeting.
The Arrangement Agreement contains customary provisions, including a non-solicitation covenant on the part of STEP, subject to the fiduciary duties of the Board in the event an unsolicited superior proposal is received by STEP.
Closing of the Arrangement is expected to occur on or about December 23, 2024, following the STEP Meeting and upon satisfaction of all conditions precedent, including receipt of the final order of the Court of King’s Bench of Alberta.
Following completion of the Arrangement, it is expected that the Shares will be delisted from trading on the TSX and an application will be made for STEP to cease to be a reporting issuer. STEP will continue to be run by its current management team, led by Mr. Steve Glanville.
A copy of the Arrangement Agreement will be available for viewing under STEP’s SEDAR+ profile at www.sedarplus.ca. Additional information about the Arrangement will be contained in the Circular, which will be mailed to shareholders and available for viewing under STEP’s SEDAR+ profile at www.sedarplus.ca. All Minority Shareholders are urged to read the Circular once available as it will contain additional important information concerning the Arrangement.
ARC Early Warning Disclosure
ARC Energy Fund 8 currently has control or direction over, directly or indirectly, 26,654,454 Shares, representing approximately 37.14% of the currently issued and outstanding Shares. ARC Energy Fund 8 and ARC Energy Fund 6 collectively exercise control or direction over 40,243,000 Shares, representing approximately 56.07% of the currently issued and outstanding Shares. Assuming completion of the Arrangement, ARC (collectively with ARC Energy Fund 6) will own or have control or direction, over, directly or indirectly, 100% of the Shares. Assuming completion of the Arrangement, ARC intends to cause the Shares to be delisted from the TSX and to cause STEP to apply to cease to be a reporting issuer under applicable Canadian securities laws, and to otherwise terminate STEP’s public reporting requirements.
ARC has its head office located in Calgary at Suite 4300, 400-3 Ave SW, Calgary, AB T2P 4H2. A copy of the relevant early warning report will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca. To obtain a copy of the early warning report, please contact ARC, at 4300, 400-3 Ave SW, Calgary, AB T2P 4H2, Attention: Chris Anderson, Email: canderson@arcfinancial.com, Phone: 403.292.0392.
Advisors and Counsel
Peters & Co. Limited is acting as financial advisor to the Special Committee. EY provided an independent valuation pursuant to MI 61-101 and fairness opinion to the Special Committee. Burnet, Duckworth & Palmer LLP is acting as legal advisor to the Special Committee.
Stikeman Elliot LLP is acting as legal advisor to STEP.
RBC Capital Markets is acting as lead financial advisor and ATB Capital Markets is acting as co-financial advisor to ARC. Norton Rose Fulbright Canada LLP is acting as legal advisor to ARC.
ATB Financial and Royal Bank of Canada are acting as co-lead arrangers and sole lenders (the “Co-Leads”) for a senior credit facility. Dentons Canada LLP is acting as legal counsel to the Co-Leads.
