Notable Mergers and Acquisitions of the Day 03/11: WG, DVN/BP, KGC
- Willbros Group, Inc. (NYSE: WG) today announced an agreement to acquire InfrastruX Group, Inc., a leading national provider of electric power and natural gas transmission and distribution infrastructure services. The acquisition creates an engineering and construction service provider with leadership positions in the global natural gas infrastructure markets as well as the fast-growing electric power transmission and distribution (T&D) markets in North America.
Under the agreement, stockholders of privately held InfrastruX will receive cash of $360 million and 7.9 million in new Willbros shares, amounting to approximately 19.9 percent of outstanding Willbros shares or $120 million, based on the Willbros 10-day average closing stock price as of March 10, 2010. In addition, InfrastruX stockholders will be eligible for contingent earn-out payments of up to $125 million in the aggregate. Those earn-out payments begin as EBITDA for the InfrastruX business exceeds $69.8 million in 2010 and $80.0 million in 2011.
"This exciting opportunity gives Willbros a leadership position in the fast-growing markets for electricity transmission and distribution services. It advances our strategy to diversify our exposure from solely the hydrocarbon value chain to fast-growing markets that draw on our core competencies in project management, engineering, construction and maintenance. It also adds to our scale at a time customers are seeking partners with greater financial strength, broader operational capabilities and wider geographic footprints," said Randy Harl, Willbros President and Chief Executive Officer. "The value of this deal reflects our expectations of EBITDA growth in the InfrastruX business, which are supported by the $474 million backlog of InfrastruX contract awards."
Willbros expects 2010 diluted earnings per share, on a pre-acquisition basis, to be in a range of $0.40 to $0.50, based on revenue of $1.0 to $1.2 billion. On a pro forma basis, including both the pre-acquisition business and InfrastruX, Willbros expects the combined entity to generate revenue in 2010 of $1.7 to $2.0 billion, with earnings in a range of $0.20 to $0.30 per diluted share. This annual proforma result is expected to include pre-tax costs associated with the transaction of approximately $11.0 million, or $0.15 per diluted share, and amortization of $21 million, or $0.28 per share, of intangible assets acquired. Company management expects the acquisition to become accretive to quarterly earnings per share during 2011. These expectations do not include the benefits of revenue or cost-saving synergies.
The combination will position Willbros as a leader in three attractive end markets for engineering, construction, maintenance and life-cycle extension services: hydrocarbon infrastructure, including natural gas pipelines; refining and processing plants; and the North American electric power transmission and distribution market, which is forecasted to attract in excess of $56 billion in capital investment over the next 12 years. The electric power T&D businesses would have accounted for 25% of Willbros' pro forma 2009 revenues, while revenues from Willbros' legacy Upstream businesses would have accounted for 52% of pro forma 2009 revenues compared with 78% of actual 2009 revenues.
InfrastruX will operate as a separate segment of Willbros. This will reduce the integration risk and keep intact the InfrastruX management team, which has agreed to continue in the new Electric Transmission & Distribution Segment, led by President and CEO Michael Lennon.
Willbros will finance the transaction with a combination of new common stock and cash. The cash consideration will be provided from existing cash on the Willbros balance sheet and new committed financing from a syndicate of banks. The new financing will consist of a three year $175 million revolving credit facility and a four year $300 million term loan.
In conjunction with the transaction, Willbros has received the consent of the holders of a majority in aggregate principal amount of its 6.5% Convertible Senior Notes due 2012 to certain amendments to the indenture for the Notes. The amendments provide that certain restrictions on Willbros' ability to incur indebtedness will not apply to up to $300 million of borrowings made to finance the cash portion of the purchase price for the acquisition. In connection with these amendments, Willbros will make a one-time payment, as special interest, equal to 4% of the principal amount of the Notes to the holders of the Notes five business days after the closing of the acquisition.
The transaction is expected to close in the second quarter 2010, subject to regulatory approvals and customary closing conditions.
Goldman, Sachs & Co. is acting as Willbros' financial advisor. Conner & Winters, LLP is serving as Willbros' legal advisor. Financial advisors for InfrastruX were UBS Securities LLC and Credit Suisse Securities (USA) LLC. Latham & Watkins LLP is serving as InfrastruX' legal advisor.
- Devon Energy Corporation (NYSE: DVN) today announced that it has entered into agreements to sell all of its assets in the deepwater Gulf of Mexico, Brazil and Azerbaijan to BP (NYSE: BP) for $7.0 billion. In addition, BP will assume Devon's leases of the Seadrill West Sirius and Transocean Deepwater Discovery drilling rigs for the duration of the contract terms. The company also announced that Devon and BP will form a heavy oil joint venture to develop BP's Kirby oil sands leases in Alberta, Canada.
"These sales, combined with our previously announced divestitures of $1.3 billion of deepwater Gulf of Mexico assets, put Devon well on the way to completing its strategic repositioning," said Larry Nichols, Devon's chairman and chief executive officer. "Given any reasonable sales price for Devon's remaining divestiture assets, the transactions to date suggest that our total after-tax proceeds for the entire divestiture program will exceed our previously announced range of $4.5 to $7.5 billion."
Devon expects closings on the various assets to occur at different times before year-end. The transactions are subject to customary closing conditions and regulatory approvals. Sales proceeds for the assets will be adjusted for revenues, expenses and capital expenditures from January 1, 2010, through the dates of closing. Devon plans to provide updates to guidance for 2010 production, expenses and capital expenditures as the transactions are closed.
Devon and BP Oil Sands Joint Venture
In order to facilitate the oil sands joint venture, Devon will acquire 50 percent of BP's interest in the Kirby oil sands leases. Devon will pay BP $500 million at closing and commit to fund an additional $150 million of capital costs on BP's behalf. Devon will be the operator of the Kirby project which lies in close proximity to Devon's highly successful Jackfish steam-assisted gravity drainage (SAGD) project. Like Jackfish, Kirby is expected to be a multi-stage SAGD development. Devon and BP also agreed to negotiate a long-term heavy crude sales agreement for Devon's share of Kirby production.
"We are excited about the opportunity to work with a world-class organization such as BP to leverage our SAGD expertise from Devon's industry-leading Jackfish project," said John Richels, Devon's president. "While the Kirby development will require additional evaluation to confirm its size and scope, we believe that it will support several phases of development and has total recoverable resources that are greater than our Jackfish complex. We believe Kirby to be similar to Jackfish in terms of geology, reservoir characteristics and oil quality."
Completion of Repositioning
On November 16, 2009, Devon announced plans to divest its Gulf of Mexico and international assets to allow the company to focus on its world-class North American onshore assets. The divestiture proceeds will be allocated between the acceleration of development of Devon's North American onshore properties and debt reduction. Upon completion of the repositioning, Devon will emerge with even more liquidity and with one of the strongest balance sheets in the peer group.
The company has now announced the sale of the majority of the divestiture assets, and data rooms for the remaining divestiture properties in the Gulf of Mexico shelf, offshore China, and other minor international assets are currently open. Devon expects the closings of all divestitures to be completed prior to year-end.
Impact on Devon's Proved Reserves and Production
As of December 31, 2009, Devon's reported estimated proved reserves included 20 million barrels of liquids and 198 Bcf of natural gas associated with the Gulf of Mexico assets being purchased by BP. Approximately 37 percent of these reserves were classified as proved developed. The international assets BP is purchasing were reported as discontinued operations at December 31, 2009 and, as such, were excluded from Devon's reported reserves and 2010 guidance for production from continuing operations.
Devon will hold a conference call today at 10:00 a.m. Central Time (11:00 a.m. Eastern Time) to provide an update on the company's strategic repositioning.
- Kinross Gold Corporation (NYSE: KGC) and Underworld Resources Inc. have entered into a letter agreement whereby Kinross would offer to acquire 100% of the outstanding common shares of Underworld by way of a friendly take-over bid, other than the 8.5% of the Common Shares already owned by Kinross (on a fully-diluted basis). Subject to the execution of definitive agreements, the board of directors of Underworld unanimously recommends the offer to its shareholders and the directors and management team have agreed to tender their shares to the offer. Pursuant to the terms of the letter agreement, Underworld has agreed to work exclusively with Kinross toward the conclusion of a definitive support agreement which is anticipated to be executed and delivered by the parties by March 15, 2010.
Highlights of the proposed transaction
For each Common Share of Underworld, Kinross will offer 0.141 of a Kinross common share, plus $0.01 in cash. The offer represents an implied offer price of approximately $2.62 per Common Share, based on the March 10, 2010 closing price of $18.54 per Kinross common share on the Toronto Stock Exchange (the "TSX"). The transaction values the fully-diluted share capital of Underworld at approximately $139.2 million.
The offer represents an attractive premium of 36.0% over the closing price of the Common Shares on the TSX Venture Exchange ("TSX-V") on March 10, 2010, the last day of trading prior to announcement of the offer, and a premium of approximately 50.2% based on the volume-weighted average prices of the Common Shares and Kinross' common shares, for the 20 trading days ended March 10, 2010.
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