Sterling Resources Ltd. (Sterling) announces that it, together with its wholly-owned subsidiary SRUK Holdings Ltd. (SRUK Holdings), has entered into a definitive agreement (the “Share Purchase Agreement”) with Oranje-Nassau Energie B.V. (ONE), the largest privately owned Dutch exploration and production company, pursuant to which ONE has agreed to acquire (the “Transaction”) from SRUK Hold ings the entire issued share capital of Sterling Resources (UK) Ltd. (SRUK) for an amount equal to US$163 million, less: (a) amounts necessary to redeem the outstanding US$40 million principal amount of bonds issued by SRUK; (b) amounts necessary to cancel the super senior revolving credit facility entered into by SRUK, SRUK Holdings and the Company with a syndicate of lenders; and (c) certain completion adjustments based on actual change of control and interim period costs relative to targeted amounts. Following all such adjustments, and other associated expenses, the Company anticipates net proceeds from the sale of SRUK of approximately US$113 million, assuming a completion date of the Transaction of May 15, 2017.
As previously announced, following the completion of Sterling’s recapitalization on May 30, 2016, the board of directors of Sterling continued its pursuit of potential M&A opportunities, though from a strengthened financial position. Sterling considered a number of alternatives from a variety of potential counterparties to maximize shareholder value over the nearly 9 months that followed. Ultimately, this process culminated with the board of directors of Sterling recommending the Transaction with ONE, which was determined to offer Sterling’s shareholders the greatest value.
“Following a careful review of the Transaction by the board of directors, in consultation with our financial and legal advisors, we believe that this Transaction represents excellent value and is in the best interests of the Sterling shareholders,” said Jake Ulrich, the Chairman of the board of directors of Sterling.
Alexander Berger, CEO of Oranje-Nassau Energie said: “I am very pleased to announce that ONE has reached an agreement with Sterling which, as with the SEAN acquisition from Shell and Esso, will substantially grow our UK footprint and adds another high quality long term gas asset to our portfolio. Since ONE was acquired in 2009, production has increased fourfold and this deal makes a significant step towards reaching our longer term 150 million barrels of oil equivalent reserves target. The transaction will be funded with support from ONE’s two lender groups. ONE continues to build upon the strong relationship with its lenders, both under the $340 million RBL facility arranged in 2014 and through a €20 million increase under the €50 million NIBC Mezzanine & Equity Partners arranged second lien facility.”
The Share Purchase Agreement
The Share Purchase Agreement provides for the implementation of the Transaction and contains customary representations and warranties of each party, non-solicitation covenants by Sterling and right to match provision in favour of ONE. Pursuant to the Share Purchase Agreement, a termination fee of US$5,000,000 will be payable by SRUK Holdings in certain circumstances, including if Sterling enters into an agreement with respect to a superior proposal or if the board of directors of Sterling withdraws or modifies its recommendation in respect of the Transaction.
Completion of the Transaction is subject to the satisfaction or waiver of a number of conditions, including the receipt of requisite shareholder, TSX Venture Exchange (TSX-V) and regulatory approvals. The Transaction requires approval by not less than 66? per cent of the votes cast by Sterling’s shareholders, voting in person or by proxy, at a special meeting of Sterling to be held to, among other things, approve the Transaction (the “Meeting”).
An information circular regarding the Transaction (the “Circular”) is expected to be mailed to shareholders of Sterling no later than April 10, 2017 with the Meeting expected to take place on or about May 8, 2017. Closing of the Transaction is expected to occur shortly thereafter.
A copy of the Share Purchase Agreement will be filed on Sterling’s SEDAR profile and will be available for viewing at www.sedar.com.
Advisors and Fairness Opinion
Jefferies International Limited (Jefferies) is acting as financial advisor to Sterling. Jefferies has provided a formal opinion that, subject to the assumptions and limitations upon which the opinion is based, the consideration to be received by SRUK Holdings pursuant to the terms of the Transaction is fair, from a financial point of view, to SRUK Holdings (the “Fairness Opinion”).
Burness Paull LLP is acting as UK counsel to Sterling and SRUK Holdings, Schjodt is acting as Norwegian counsel to Sterling and SRUK Holdings and Stikeman Elliott LLP is acting as Canadian counsel to Sterling.
Recommendation of the Board of Directors and Voting Support
After considering, among other things, the Fairness Opinion and other relevant matters, the board of directors of Sterling has unanimously determined that the Transaction is in the best interests of Sterling and unanimously recommends that the shareholders of Sterling vote in favour of the Transaction.
All of the directors and officers, who hold stock or stock options of Sterling, have entered into voting support agreements with ONE pursuant to which they have agreed, among other things, to vote their shares of Sterling in favour of the Transaction, subject to certain permitted exceptions. Similarly, certain shareholders holding in aggregate in excess of 79 per cent of the shares of Sterling have entered into voting support agreements with ONE on similar terms. In aggregate, shareholders holding in excess of 79 per cent of the shares of Sterling have agreed, among other things, to vote their shares of Sterling in favour of the Transaction, subject to certain permitted exceptions.
Winding-Up of Sterling
In the event that the Transaction is ultimately approved by shareholders of Sterling, all other conditions to closing are satisfied or waived and the Transaction is completed in accordance with the terms of the Share Purchase Agreement, Sterling will not have any active business operations or assets other than cash, including indirectly the cash consideration received by SRUK Holdings from ONE as consideration for the shares of SRUK. As a result, it is the current intention of Sterling to undertake a voluntary winding-up and dissolution following completion of the Transaction (the “Winding-up”).
Pursuant to the Winding-up, Sterling intends to distribute all net proceeds of the Transaction (after the payment or discharge of all obligations, including those associated with each of the Transaction and Winding-up itself (collectively, the “Obligations”)) to the shareholders of Sterling in the form of reductions of paid-up capital and in one or more instalments.
The Winding-up requires approval by not less than 66? per cent of the votes cast by Sterling’s shareholders, voting in person or by proxy, at a meeting duly called for that purpose. As a result, shareholders will be asked to approve the Winding-up at the Meeting.
There are a number of variables, known and unknown, that may impact the ultimate amount of the distributions payable to Sterling’s shareholders in connection with the Winding-up, including the quantum of the Obligations. While the distributions made to Sterling’s shareholders may therefore be materially lower than the amount currently anticipated, based on the information available to Sterling at the date hereof, it is anticipated that the cumulative distributions to be paid to the Sterling shareholders subsequent to the completion of the Transaction are likely, based on today’s exchange rate, to be in the range of approximately CDN$0.97 to CDN$1.02 per share.
The common shares of Sterling are expected to cease trading and be delisted from the TSX-V on or about the time of the final distribution to Sterling shareholders.
