IN THE NEWS / PrimeWest Energy Trust In Court Today Over Hostile Bid For Two Trusts
Fighting Poison Pills: Orion and Starcor still looking for white knights
By CLAUDIA CATTANEO
The Financial Post
CALGARY -- A nasty hostile takeover fight for two oil and gas royalty trusts is going to court today.
PrimeWest Energy Trust, bidding to take over competitors Orion Energy Trust and Starcor Energy Royalty Fund, is asking the Alberta Court of Queen's Bench to eliminate the targets' poison pills.
Kent MacIntyre, PrimeWest vice-chairman and chief executive, said the shareholder rights' plans are being challenged on two grounds -- trusts do not have the authority under their declarations to institute poison pills without unit holder approval; and the pills discriminate against unit holders who control more than 20%.
A court decision, which may come today, will determine the battle's next steps, Mr. MacIntyre said.
The current bid expires Jan. 12. No decision has been made about how to proceed if the poison pills, which allow the two trusts 60 days from the launch of a takeover bid to investigate options, are not struck down by the court.
Calgary-based PrimeWest unveiled offers on Dec. 11 to take over the funds. Also based in Calgary, Starcor and Orion are separate trusts run by the same group.
The bids value Starcor at $95-million, including the assumption of $40-million in debt, and Orion at $105-million, including $34-million in debt.
PrimeWest is offering 1.207 of its units for each Starcor unit, and 0.968 PrimeWest units for each Orion unit.
PrimeWest says a merger of the three would give Starcor and Orion unit holders a premium over market value, increase future cash distributions, result in operating synergies, and a reduction in management fees.
But Starcor and Orion have charged the offers are too low. They also claim PrimeWest wants the merger because its own production is declining, and a major driving force behind the deal is big bonuses for PrimeWest management if the acquisition is successful.
Tom Budd, managing partner at Griffiths, McBurney & Partners and financial advisor to Orion, also complained that PrimeWest was reluctant to discuss the deal's benefits at unit holder meetings this week in Calgary, Vancouver, and Montreal.
In an indication of the nastiness, security was called in in both Vancouver and Montreal by PrimeWest to keep Orion representatives from distributing information from adjacent rooms. A meeting in Toronto is scheduled today.
Analysts seem divided about whether PrimeWest will win the campaign. Oil and gas trusts' current depressed values could make it difficult to line up a better bid.
And one of PrimeWest's advantages is its willingness to tackle the hefty costs of terminating management contracts -- which could run up to $7-million for Orion and $5.7 million for Starcor, one analyst said. The costs are discouraging other potential buyers.
Starcor and Orion, however, continue to look for a white knight.
Both have opened data rooms and several parties have expressed interest, said Lamont Tolley, president and chief executive of both funds.
One option is for the trusts to continue in their current form, Mr. Tolley said.
A myriad of small investors have bought into oil and gas trusts in recent years, attracted by the potential for stable income distributions in a low interest rate environment.
But trust values have cratered across the board since the oil-price collapse in the fall of 1997. Unit values are unlikely to recover until commodity prices improve.
Meanwhile, depressed values are expected to fuel industry consolidation.
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