ENERGY TRUSTS / ARC Energy Trust, Starcor Energy Royalty Fund and Orion
Energy Trust announce agreements to merge
CALGARY, January 18 /CNW/ - ARC Energy Trust (''ARC Trust'')
(AET.UN - TSE), Starcor Energy Royalty Fund (''Starcor'') (STR.UN - TSE) and
Orion Energy Trust (''Orion'') (OET.UN - TSE) are pleased to announce that ARC
Trust has agreed in separate transactions to merge with each of Starcor and
Orion, with the merged entity to be managed by ARC Financial Corporation
(''ARC Financial'').
Under the terms of the agreement between ARC Trust and Starcor, ARC Trust
will acquire each unit of Starcor in exchange for 1.09 ARC Trust Units and
0.218 of a Warrant to purchase an ARC Trust Unit.
The board of directors of Starcor has unanimously agreed to recommend
that Starcor unitholders approve the merger and ScotiaMcLeod Inc., the
financial advisor to Starcor, has provided its opinion that the merger
proposal is fair, from a financial point of view, to the Starcor unitholders.
The value of the consideration being offered for each Starcor unit
represents a premium of approximately 23% to the closing price of Starcor
units on January 15, 1999 and 50% to the closing price on December 10, 1998,
immediately prior to the announcement of an unsolicited take-over bid made by
PrimeWest Energy Trust (''PrimeWest'').
Under the terms of the agreement between ARC Trust and Orion, ARC Trust
will acquire each unit of Orion in exchange for 0.875 of an ARC Trust Unit and
0.175 of an ARC Warrant.
The board of directors of Orion has unanimously agreed to recommend that
Orion unitholders approve the merger and Griffiths McBurney & Partners, the
financial advisor to Orion, has provided its opinion that the merger proposal
is fair, from a financial point of view, to the Orion unitholders.
The value of the consideration being offered for each Orion unit
represents a premium of approximately 28% to the closing price of Orion units
on January 15, 1999 and approximately 51% to the closing price on December 10,
1998, immediately prior to the announcement of an unsolicited take-over bid
made by PrimeWest.
Each full ARC Warrant will give the holder the right to purchase one ARC
Trust Unit at a price of $7.25 until June 15, 2000.
The proposed mergers result from a process conducted by each of Starcor
and Orion in response to unsolicited take-over bids made by PrimeWest for each
of Starcor and Orion under which the boards of Starcor and Orion undertook to
seek alternative transactions in order to maximize value for their respective
unitholders. The board of directors of each of Starcor and Orion had
previously determined that the PrimeWest bids were not adequate and
recommended that their respective unitholders reject the offers.
Neither merger is conditional upon the successful completion of the other
merger. Meetings of the unitholders of each of Starcor and Orion to approve
the respective mergers are expected to be held on or about March 10, 1999. At
each meeting, the merger requires approval by 66 2/3% of the units voted at
the meeting.
John Dielwart, President of ARC Trust, stated that ''When both mergers
are completed, total production of the ARC Trust will increase from
approximately 10,300 boe/d to in excess of 19,000 boe/d and total reserves, on
a proved plus half probable basis, will increase from 47 million boe to
approximately 90 million boe. Most importantly, the new assets coming into ARC
Trust are of the highest quality.''
ARC Financial, the manager of ARC Trust, believes the mergers will bring
the following benefits to unitholders of ARC Trust:
1. Low reserve acquisition costs of approximately $5.00/boe for proved
plus risked probable reserves, if both mergers are completed.
2. High quality long life reserves being acquired will increase ARC
Trust's reserve life index from 12.4 to 12.7 years, if both mergers
are completed.
3. An attractive new core area in Jenner (representing 35% of Starcor's
established reserves) will increase ARC Trust's exposure to gas
through ownership in a large, operated, high quality gas property.
4. Property synergies between Orion's Sundre/Caroline and Pembina areas
and ARC Trust's existing operations offer cost reduction and
production optimization opportunities, particularly in the Pembina
area.
5. Combined general and administrative costs and management fees are
estimated to decrease by 33% from approximately $1.20/boe to
approximately $0.80/boe, if both mergers are completed.
6. Increased market liquidity and access to capital, with an increase in
market capitalization from approximately $180 million to $345 million
if both mergers are completed, while preserving ARC Trust's present
debt to equity ratio.
With respect to Unitholder distributions, ARC Trust has been distributing
$0.10 per unit monthly since July, 1997. ARC Trust has maintained these
distributions through an extremely low oil price environment. These combined
transactions are expected to allow ARC Trust to maintain existing
distributions, based on the average 1999 price forecast from three major
independent oil and gas engineering firms.
Lamont Tolley, Chairman of Starvest Capital Inc. (''Starvest''), the
manager of Starcor and Orion, stated that ''These mergers recognize the value
of the asset portfolios assembled by each of Starcor and Orion. The combined
assets in the ARC Trust will be managed by ARC Financial, one of the leading
firms in the energy business with a demonstrated capability for creating value
for unitholders.''
Starvest and the respective boards of Starcor and Orion believe the
following benefits will accrue to the unitholders of each of Starcor and
Orion:
1. The consideration offered under the mergers represents a significant
premium to recent trading prices as well as to the closing prices of
the Starcor and Orion units prior to the PrimeWest offers.
2. Additional leveraged upside with the inclusion of the ARC Warrant,
particularly with oil at a low point in the price cycle.
3. Increased diversification to ARC Trust's high quality base of
existing properties and specific identified property synergies.
4. As a result of increased size and economies of scale, total general
and administrative costs and management fees per boe are expected to
decline by about 50% for Starcor and 35% for Orion.
The agreements between ARC Trust and each of Starcor and Orion contain
provisions which include:
1. Each of Starcor and Orion will close their respective data rooms and
cease soliciting other offers.
2. ARC Trust will have a right of first refusal with respect to any
other proposals that Starcor or Orion may receive.
3. A break-up fee would be paid to ARC Trust of $3.0 million by Starcor
and $3.75 million by Orion if their respective mergers are not
completed in certain circumstances.
The proposed mergers are not subject to the unitholders rights plans of
Starcor and Orion, which plans will remain in place. The completion of each
proposed merger is subject to satisfaction of all regulatory requirements.
ARC Trust, Starcor and Orion will hold a joint conference call at 2:00
p.m. (Calgary time) on Tuesday, January 19, 1999. The call in number for the
conference call will be announced later today
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