- The
CAD 4.10 1 per share TransGlobe shareholders will be forced to accept if the Proposed Transaction is approved severely undervalues TransGlobe, which is in a position to monetizeCAD 5.09 toCAD 5.71 per share in cash in the next 12 months, while continuing to hold its full stake in its core Egyptian business. - The Vaalco share consideration creates unnecessary risk to TransGlobe shareholders, as its value is based on speculative expectations of uncertain future exploration results, which may never materialize.
Horizon believes that TransGlobe shareholders should VOTE AGAINST the Proposed Transaction so that the Company can instead pursue certain alternatives that we currently anticipate would result in greater long-term value to all shareholders of
Consistent with such course of action, Horizon currently estimates that the Company is in a position to generate approximately
Horizon is a privately-owned firm with advisory and principal investment activities and with substantial focus on the energy industry.
The text of the public statement to TransGlobe shareholders is as follows:
Dear Fellow TransGlobe Shareholders:
We are extremely disappointed with the terms of the Proposed Transaction with Vaalco for the following reasons:
The value of the Vaalco shares, which represents the form of consideration to be received by TransGlobe shareholders for the sale of their TransGlobe shares, has dropped approximately 25% to
- The value of the Vaalco shares dropped from
USD 6.23 onJuly 14, 2022 , the date the Proposed Transaction was announced, toUSD 4.69 , as ofSeptember 12, 2022 . This change effectively reduces the value of the consideration to be paid to TransGlobe shareholders from the announcedUSD 307 million to a significantly lowerUSD 231 million , equivalent toCAD 5.44 toCAD 4.10 per share5, representing a decline of approximately 25%. If the Proposed Transaction is approved by shareholders at the Meeting, this decline in value would impact all TransGlobe shareholders since there is no adjustment mechanism in the arrangement agreement to protect the shareholders.
At
Monetization Events | MM USD | CAD / Share6 | ||
Range | Range | |||
Effective Date Adjustment Payment from the Egyptian Government | 67.5 | 1.20 | ||
Second Half 2022 After Tax Free Cash Flow | 46.8 | 0.83 | ||
First Half 2023 After Tax Free Cash Flow | 32.2 | 0.57 | ||
Sale of TransGlobe Canadian Business | 85 - 120 | 1.50 - 2.12 | ||
Net Cash Position (as of | 55.8 | 0.99 | ||
Possible Monetization in the Next 12 Months | 287.3 - 322.3 | 5.09 - 5.71 |
- Horizon believes TransGlobe is in a position to monetize
USD 287.3 million toUSD 322.3 million , orCAD 5.09 toCAD 5.71 per share, in cash, within the next 12 months, while continuing to hold its full stake in its core Egyptian business, as follows:
a) | Collect the effective date adjustment payment from the Egyptian government, which the Company has recognized as a receivable of | |
b) | The Company’s guidance for 2022 free cash flow on their June corporate presentation is | |
c) | As of | |
d) | Horizon believes that TransGlobe’s Canadian business could be sold for | |
e) | As of |
- Even cash consideration with a value
USD 231 million (being the value as ofSeptember 12, 2022 , of the Vaalco shares that TransGlobe shareholders would receive in connection with the Proposed Transaction) represents an unfair and poor deal for TransGlobe shareholders, particularly given that on a standalone basis the Company could monetize a higher amount in cash within the next 12 months, while continuing to hold its core Egyptian business, which reported an after-tax NPV10 of P1 reserves ofUSD 226.9 million onDecember 31, 2021 and is expected to have annual free cash flow in 2023 ofUSD 64.4 million , as per Capital IQ. - Furthering the unfairness of the Proposed Transaction for TransGlobe shareholders, the consideration will be paid in Vaalco shares, a much inferior, and speculative form of consideration than cash for the reasons discussed below.
- If the Proposed Transaction is approved at the Meeting, we believe that it would be done at the peril of the TransGlobe shareholders.
Vaalco shares are a speculative and poor form of consideration as their value is highly uncertain, given Vaalco’s very limited certified reserves and short reserve life. Moreover, the share exchange ratio of 54.5% (for Vaalco shareholders) to 45.5% (for TransGlobe shareholders) unfairly favours Vaalco shareholders and is not in the best interests of TransGlobe shareholders, as TransGlobe is a significantly more valuable company than Vaalco, according to the relevant tangible comparable metrics.
Metrics | TransGlobe | Vaalco | TransGlobe / Vaalco | |
SEC P1 Reserves as of | MMboe | 21.2 | 11.2 | 1.9x |
SEC After Tax Value P1 Reserves as of | MM USD | 304.4 | 99.3 | 3.1x |
2P Reserves as of | MMboe | 46.1 | 19.5 | 2.4x |
Free Cash Flow during the First Half of 2022 | MM USD | 23.210 | 2.811 | 8.3x |
Total Net Cash Position | MM USD | 123.3 | 48.0 | 2.6x |
as of | MM USD | 55.810 | 48.011 | 1.2x |
Effective Date Adjustment | MM USD | 67.5 |
- Vaalco’s current market capitalization, of
USD 280.6 million as ofSeptember 12, 2022 , is not supported by the tangible value of certified reserves, and instead depends on a more speculative expectation of future exploration results, which may never materialize. SEC certified proven reserves of Vaalco as ofDecember 31, 2021 , amount to just 11.2 million barrels, roughly half of TransGlobe’s 21.2 million barrels.- Worse still, the reported NPV10 of Vaalco’s after-tax proven reserves as of
December 31, 2021 , at onlyUSD 99.2 million , is less than one-third of TransGlobe’sUSD 304.4 million and does not support Vaalco’s market capitalization ofUSD 280.6 million as ofSeptember 12, 2022 . - The picture is just as bad when comparing Vaalco’s 2P reserves as of
December 31, 2021 , at 19.5 million barrels to TransGlobe’s 46.1 million barrels.12 - Vaalco’s reported free cash flow for the first half of 2022 was only
USD 2.8 million as compared with TransGlobe’sUSD 23.2 million . - We calculate Vaalco’s P1 reserve life index to be a meager 3.3 years, assuming Vaalco’s midpoint guidance production of 9,250 boepd.13
- TransGlobe is a more valuable company than Vaalco, according to the relevant tangible metrics:
a) | As of | |
b) | As of | |
c) | During the first half of 2022, TransGlobe reported 8.3x the free cash flow reported by Vaalco over the same period. | |
d) | TransGlobe reported a higher net cash balance on |
- Given this stark contrast in value and performance, an exchange ratio in favor of Vaalco shareholders is not fair to or in the best interests of the Company or its shareholders.
- Those in favour of the Proposed Transaction may try to argue that there is substantial potential value in the contingent resources and prospective resources of Vaalco, however TransGlobe shareholders should be cautious in taking unnecessary risks with their investment in TransGlobe by placing their faith in such potential value which is based on speculative expectations and, as such, may never materialize.
Horizon believes that TransGlobe shareholders should VOTE AGAINST the Proposed Transaction so that the Company can instead pursue certain alternatives that we currently anticipate would result in greater long-term value to all shareholders of
Consistent with such course of action, Horizon currently estimates that the Company is in a position to generate approximately
We believe that if shareholders of TransGlobe VOTE AGAINST the Proposed Transaction, the Company will be in a position to pursue this action plan which could result in the monetization of value for shareholders of
Based on the clear arguments made in this letter, we intend to VOTE AGAINST the Proposed Transaction, and we urge all TransGlobe shareholders to VOTE AGAINST the Proposed Transaction at the Meeting.
Information in Support of Public Broadcast Solicitation:
The following information is provided in accordance with Canadian corporate and securities laws applicable to public broadcast solicitations. Horizon is relying on the exemption under section 9.2(4) of National Instrument 51-102 – Continuous Disclosure Obligations ("NI 51-102") to make this public broadcast solicitation. This solicitation is being made by Horizon and not by or on behalf of the management of TransGlobe. The registered office address of TransGlobe is 900,
Horizon has filed this press release containing the information required by section 9.2(4)(c) of NI 51-102 on TransGlobe's company profile on SEDAR at www.sedar.com.
Horizon may solicit proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws, conveyed by way of public broadcast, including through press releases, speeches or publications, and by any other manner permitted under applicable Canadian laws. All costs incurred for the solicitation will be borne by Horizon.
A TransGlobe shareholder who has given a proxy has the power to revoke it. If a TransGlobe shareholder who has given a proxy attends the Meeting at which the proxy is to be voted, such TransGlobe shareholder, may revoke the proxy and vote at the Meeting. In addition to revocation in any other manner permitted by law, a proxy may be revoked by an instrument in writing signed by the TransGlobe shareholder or his or her attorney authorized in writing, or, if the TransGlobe shareholder is a corporation, under its corporate seal and signed by a duly authorized officer or attorney for the corporation, and deposited at the registered office of TransGlobe at any time up to and including the last day (other than Saturdays, Sundays and statutory holidays in the Province of
FOR FURTHER INFORMATION PLEASE CONTACT:
Calle 53E, Urbanización Marbella,
Tel: +1 347 759 6074
E-mail: jpa@horizon-partners.com
Calle 53E, Urbanización Marbella,
Tel: +54 911 6252 4736
E-mail: jps@horizon-partners.com
Advisors:
ABOUT HORIZON PARTNERS.
Horizon is a privately-owned business with advisory and principal investment activities and with substantial focus on the energy industry.
Cautionary Statement Regarding Forward Looking Information
All statements, other than statements of historical fact, included in this news release constitute "forward-looking information" as such term is defined in applicable Canadian securities legislation. Forward-looking information can generally be identified by the use of forward-looking language such as "will", “would”, “could”, "expect", "intend", "plan", "estimate", "anticipate", “may”, "believe" or "continue" (and grammatical variations and the negatives thereof) and include statements concerning Horizon's intentions and strategies regarding the Company, Horizon’s views on potential alternatives to monetize value for the Company and its shareholders instead of pursuing the Proposed Transaction (and the potential timeframe for such monetization) and the impact on the financial condition, operation, business, strategies and competitive position of the Company and its future management if the Proposed Transaction is not approved by the shareholders. Such forward-looking information is based on certain understandings, assumptions, beliefs, opinions and expectations of Horizon, including, without limitation, the Company's future growth potential, results of operations, future cash flows, ability to monetize assets, the future performance and business prospects and opportunities of the Company, the regulatory environment and economic and market conditions that the Company faces and those assumptions noted above in this news release. Shareholders should not place undue reliance on such forward-looking information, which is not a guarantee that any particular outcome, event, result, performance or other achievement will occur. Many risks, uncertainties and other factors could cause the actual outcomes, events, results, performance or achievements expressed or implied by such forward-looking information to vary materially from those described herein should any of those risks, uncertainties or other factors materialize. Such risks, uncertainties and other factors include, without limitation, the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; availability of credit and other financing; the financial markets in general; the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; and all other risks and uncertainties detailed in the Company's filings with applicable Canadian securities commissions, copies of which are available on SEDAR at www.sedar.com. Accordingly, readers of this news release are cautioned not to place undue reliance on any forward-looking information contained in this news release. All forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. All forward-looking information contained herein is made as of this news release and Horizon undertakes no obligation to publicly update or revise any such forward-looking information, except as required by law.
SOURCE:
1 TransGlobe shareholders will receive 0.6727 shares of Vaalco per share of TransGlobe. The value of Vaalco shares as of
2 As described in the Company’s most recent financial statements: “Upon execution of the merged concession, there was an effective date adjustment owed to the Company for the difference between historic and merged concession agreement commercial terms applied against Eastern Desert production from the effective date of
3 Assuming average Brent price for 2022 of
4
5 Assumes 73.3 million shares of TransGlobe outstanding, and a CAD / USD FX rate as of
6 Assumes CAD / USD FX rate as of
7 This estimated value is based on the natural gas liquids and crude oil proportional netback guidance of USD 4g0 multiplied by the production guidance range of 2,400 to 2,600 boepd provided by TransGlobe management in their
8 Vaalco Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934.
9 TransGlobe and Vaalco independent reserves evaluations for the year ended
10 TransGlobe press release: Second Quarter 2022 Financial & Operating Results.
11 Vaalco press release: Second Quarter 2022 Results.
12 Vaalco does not disclose the NPV10 of its 2P reserves, so a comparison with TransGlobe is not possible.
13 Vaalco does not provide a calculated RLI.
Source:
2022 GlobeNewswire, Inc., source