ArPetrol Ltd. is pleased to announce the signing of a share and debt purchase agreement with Empresa Nacional Del Petroleo (ENAP) and its subsidiary ENAP Sipetrol Argentina S.A. that provides for the sale of substantially all of the assets of the Company. Pursuant to the Agreement, the Purchaser will acquire all of the shares of ArPetrol International Financial Company Inc. (AIFC), the wholly owned subsidiary of the Company which indirectly holds the shares of ArPetrol Argentina S.A. (AASA). AASA holds all of the Company’s operating assets in Argentina. In consideration, the Purchaser will pay the Company an aggregate cash purchase price of US$9.0 million (CAN$11.7 million converted at the March 17, 2016 exchange rate reported by the Bank of Canada) plus an estimated amount of CAN$3.0 million for AASA net working capital at closing, for an estimated total purchase price of approximately CAN$14.7 million.
The estimated total purchase price of CAN$14.7 million, would represent approximate proceeds of CAN$0.65 for each issued and outstanding common share of ArPetrol, most of which the Company intends to distribute to the shareholders of the Company as a return of capital. The Transaction is expected to close in May 2016.
Key Benefits of the Transaction
The Transaction provides Shareholders of ArPetrol with a significant premium over the Company’s current
share price. Current market conditions for international junior oil and gas companies, and the ability to
raise capital in this environment to further develop and expand the Company’s assets in Argentina, are very
uncertain. It is difficult to predict whether ArPetrol’s share price could return to this Transaction valuation
or when it could do so. Accordingly, the management and board of directors of the Company determined
that this was a unique opportunity to realize such a premium in a very uncertain market.
In the event that the Transaction is ultimately approved and completed according to the terms of the
Agreement, the Company will not have any active business operations or assets other than cash. The
Company expects to be delisted from the TSX Venture Exchange and to proceed with a voluntary windup
and dissolution process following completion of the Transaction. In connection therewith, the Company
intends to distribute the available portion of the net proceeds of the Transaction (after payment of
Transaction costs and payment of all liabilities and obligations of the Company) to Shareholders in multiple
installments as a return of capital. Based on the Transaction terms, it is expected that the initial distribution of approximately 65-70% of the net proceeds of the Transaction will be made to Shareholders shortly after
the 90-day purchase price adjustment period for working capital following closing, and a final distribution
of the remaining funds will be made after settling all liabilities and expenses of the Company and deducting
all Transaction and dissolution costs.
There are many unknown variables that cannot be accurately predicted as this time, along with known items
that are difficult to quantify, all of which will impact the ultimate amount of the distribution payable to
Shareholders and the distributions may ultimately be materially lower than currently anticipated. However,
based on the best available information at the current time (including assumptions regarding currency
exchange rates and working capital assumptions in “Forward Looking Information” below), it is anticipated
that the cumulative distributions to be paid to Shareholders subsequent to completion of the Transaction
are likely to be in the range of approximately CAN$0.59 to $0.62 per common share.
Completion of the Transaction and Windup of the Company
Completion of the Transaction is subject to customary conditions for a transaction of this nature, which
include applicable regulatory and stock exchange approvals and the approval by not less than 66 2/3% of
the votes cast by Shareholders represented in person or by proxy at a meeting of Shareholders to be called
to consider and approve the Transaction in accordance with the Business Corporations Act (Alberta). The
outside date under the Agreement to satisfy all conditions and close the Transaction is December 31, 2016.
The Agreement includes customary non-solicitation covenants by ArPetrol and provides ArPetrol with the
ability to respond to unsolicited proposals considered superior to the Transaction in accordance with the
terms of the Agreement. In the event ArPetrol accepts a superior proposal, ArPetrol will be required to pay
a break fee of $US500,000 to ENAP. ENAP has a right to match any superior proposal. An escrowed
holdback amount of $US2,250,000 will be withheld from the Transaction proceeds at closing. Subject to
any post-closing adjustments or indemnity claims that may arise under the Agreement, this escrowed
amount will be released to ArPetrol approximately six months after closing.
The board of directors of ArPetrol has unanimously determined that the Transaction is in the best interests
of the Corporation and is fair to the Shareholders and is unanimously recommending that the Shareholders
vote in favour of the Transaction. Raymond James has provided the board of directors with a verbal fairness
opinion that the consideration to be received under the Transaction is fair, from a financial viewpoint, to
the Shareholders.
The windup and dissolution of the Company are also subject to requisite Shareholder approval by not less
than 66 2/3% of the votes cast by the Shareholders represented in person or by proxy at the meeting of
Shareholders.
Details of the Transaction and the planned dissolution and windup of the Company, and the risks and
procedures associated therewith, will be disclosed in greater detail in the information circular of the
Company for the Shareholder meeting which the Company currently anticipates will be mailed to the
Shareholders in April 2016 for an annual and special meeting of Shareholders to take place in May 2016,
with closing expected to occur shortly thereafter. Certain directors and/or senior officers of the Company,
who collectively own approximately 16% of the outstanding ArPetrol common shares have agreed to vote
their shares in favour of the Transaction. A copy the Raymond James fairness opinion will be included in
the information circular sent to the Shareholders.
