Regulators review Westlinks bid for stakes in 40 oilpatch firms
Small company's 'incredible' attempt sends out shock waves
Claudia Cattaneo and Carol Howes
Financial Post
Todd Korol, Financial Post / Peter Sekera, chief executive of Westlinks Resources of Calgary, is shown in his office hours after his company's bold announcement.
CALGARY - Securities regulators in Alberta and Ontario, and the Toronto Stock Exchange, launched reviews yesterday that could take the wind out of an unprecedented all-share hostile bid for interests in 40 oil and gas companies by a relatively unknown junior producer.
Westlinks Resources Ltd. unveiled hostile offers to buy into the companies in a deal that could be worth more than $2-billion, including such stalwarts as Anderson Exploration Ltd., Crestar Energy Inc., Poco Petroleum Ltd., Rigel Energy Corp., and Summit Resources Ltd.
"We are in discussions with company counsel to ensure that the bid proceeds in accordance with the regulatory rules," said David Linder, the Alberta Securities Commission's executive director.
In a statement late yesterday, the ASC and the Ontario Securities Commission said: "The proposal raises significant and novel regulatory considerations. At this juncture, it is premature to comment on whether staff will conclude that the proposal should or should not be allowed to proceed from a securities regulatory point of view."
The bid, because of its magnitude, caused havoc in the industry. The TSE halted trading in the shares of the 40 companies for almost two hours, while the targets headed to their war rooms to devise strategies.
"This is incredible," said Neil Winchester, manager of market surveillance for the TSE. "In all the years I have been in the industry, I have never come across this."
Reaction ranged from dismay, to awe, to astonishment.
"We think it's frivolous at best, but it's a nuisance. We obviously have some legal responsibility to respond to it," said John Ferguson, vice-president and chief financial officer at Poco Petroleums.
"I had preliminary conversations with one of their officers, and expressed our concerns, and told them we intend to fight it and encouraged them to take our name off the bid. We have also contacted our legal counsel to see what legal avenues we can pursue to stop this."
Mr. Ferguson said targeted firms are discussing forming a common front.
Westlinks is a junior oil company listed on the Alberta Stock Exchange formed last year out of three small producers. The proposal, which would essentially create a mutual fund, was driven by Peter Sekera, the chairman and chief executive. The 40 were chosen from a list of more than 400 firms using in-house analysis that was described as very sophisticated. If successful, Westlinks would issue 1.6 billion shares in exchange for shares of the targeted companies.
Westlinks said it doesn't want to control the companies, and only wants to hold the stock for investment purposes.
It's a "very awkward way and disruptive way for setting up a fund," said Barry Jackson, president and CEO of Crestar.
The company is being advised by an accounting firm, Collins Barrow Ltd.
Those who know Mr. Sekera say he's a driven and brilliant researcher. Others dismissed him as having a tendency to come up with wild schemes.
"I can state with a lot of confidence that this bid will fail," said Tom Budd, managing partner at Griffiths McBurney & Partners. "I can't see how any reasonable investor will trade shares in what are seemingly undervalued oil and gas companies for shares in an unknown company trading at approximately 15 times cash flow and a cash flow of less than $2-million a year. The only people I see interested in it are brokers who are putting commissions ahead of advice."
Whether or not it is successful, the consensus is that it will generate much business for lawyers and brokers, unless it's kept from proceeding by regulators.
The targeted firms are legally obliged to respond, while the bidder has to mail the offer to the 40 companies' shareholders.
Because of the massive mailing, the bid is expected to run up huge costs in postage, paper, and legal and broker bills.
"It's a mockery of the capital markets that something like this would cause the TSE to halt trading of all these companies," said an investment banker, who asked not to be named. "They're just stupid to believe they could make it happen."
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