Savanna Explains Why Friendly Proposed Acquisition by Western Energy Is Superior to Hostile Offer From Total Energy

CALGARY, ALBERTA–(Marketwired – March 13, 2017) – Savanna Energy Services Corp. (“Savanna“) (TSX:SVY) today explained why the Western Energy Services Corp. (“Western“) (TSX:WRG) friendly proposed acquisition of Savanna (the “Western Offer“) is superior to the Total Energy Services Inc. (“Total“) hostile offer (the “Total Offer“).

Savanna also refuted a number of unsubstantiated and erroneous claims by Total in a news release dated March 9, 2017. Savanna reiterated the unanimous recommendations of the board of directors of Savanna (the “Savanna Board“) that Savanna shareholders should vote in favour of the Western Offer and reject the Total Offer.

As previously disclosed, the Western Offer is on the basis of 0.85 of a common share of Western for each outstanding common share of Savanna (the “Savanna Shares“). The transaction is to be completed by way of a plan of arrangement under the Business Corporations Act (Alberta) (the “Arrangement“).


The Western Offer and proposed combination (“Savanna-Western“) is far more compelling to Savanna shareholders than the Total Offer and proposed combination (“Total-Savanna“) for a broad array of reasons.

The Western Offer premium favours Savanna-Western by a range of 3.5 percentage points to 12.8 percentage points, as further described in the table below. Beyond that, Savanna-Western delivers, among other things:

  • Far greater ownership for Savanna shareholders
  • Expected higher customer retention and stronger First Nations partnerships
  • A pure play stock with greater liquidity
  • True industry consolidation
  • Less business integration risk
  • Better aligned management focus and experience
  • Larger and more diverse rig fleets
  • No secrets with Savanna-Western
  • Better exposure to rising energy prices
  • Better U.S. positioning

Far greater ownership for Savanna shareholders with Savanna-Western

A Savanna-Western combination delivers 58% ownership of the combined company to Savanna shareholders, which compares favourably to Savanna’s contribution of approximately 56% of Savanna-Western’s average EBITDAS1 for the years ended December 31, 2014, 2015 and 2016.

In contrast, Savanna shareholders would own just 33% of a Total-Savanna combination, despite Savanna contributing approximately 65% of Total-Savanna’s average EBITDAS for the years ended December 31, 2014, 2015 and 2016.

Savanna-Western provides Savanna shareholders a materially larger ownership position than Total-Savanna. These arguments remain valid on a debt-adjusted basis, after taking into consideration the relative indebtedness of each of Savanna, Western and Total.

Expected higher customer retention and better First Nations relationships with Savanna-Western

There can be no assurance that Savanna customers would become customers of Total-Savanna. Unsolicited, a number of Savanna’s customers have expressed concerns about the Total transaction. The loss of any customers could have a significant negative impact on the Total-Savanna business. No similar customer concerns have been expressed with regard to the Western Offer. The Western management team has a proven track record of operating a large scale contract drilling and well servicing organization and has established strong relationships with a number of the top tier customers.

Savanna has developed deep relationships with First Nations communities in western Canada as investors, partners and employees. These relationships are based on mutual trust and Savanna is confident that they can be transferred to Savanna-Western. Western also works with a First Nations community and is eager to expand those relationships through the experience and relationships that Savanna’s employees have fostered over the last 15 years. However, Savanna has heard, on an unsolicited basis, from certain of its First Nations partners that they would take steps to end these relationships if Total were to be successful with its hostile offer, one of which is due to a Savanna customer, which has an important relationship with the First Nations community, who has stated they will not do business with Total.

A pure play stock with greater liquidity than Total-Savanna

The market capitalization of Savanna-Western would be solely correlated to drilling, well servicing and related rentals. Total-Savanna would be a mixture of businesses that are not as closely related. For investors who want exposure to drilling and well servicing in a larger capitalization company, Savanna-Western will offer them another strong alternative.

1 EBITDAS means earnings before finance expenses, income taxes, depreciation, impairment losses and share based compensation and excludes other expenses (income). See “Cautionary Statements – Non-IFRS Measures”.

True industry consolidation with Savanna-Western

Consolidation in the drilling and well servicing industry, which Savanna understands is the reason one of the Locked-Up Shareholders (as defined below) commenced this process, is important at this point in the business cycle. Savanna-Western provides that consolidation and the advantages of economies of scale. Savanna-Western would be the second largest drilling contractor and second largest service rig contractor in Canada. Total-Savanna does not provide meaningful consolidation in the drilling and well servicing segments.

During 2017 year-to-date, generally the most active time of the year in Canada, utilization of Savanna’s and Western’s drilling fleets were 51% and 60% respectively, compared to 14% for Total’s 18 rigs. Total’s drilling fleet utilization has been among the lowest in the industry and it has no well servicing rigs.

Less business integration risk with Savanna-Western

As a result of the hostile Total Offer, the Savanna Board initiated a strategic alternatives process that culminated with its recommendation of the superior Western Offer. Total was invited to participate in the process, including access to non-public information, which was declined. Western and Savanna, which operate in the same business lines, have taken the opportunity to perform and complete reciprocal due diligence.

Savanna-Western expects to efficiently and effectively integrate talent at the employee, senior management and board levels while quickly developing significant operational synergies. Having completed due diligence, Savanna and Western understand that they have complementary corporate cultures, similar businesses, similarity of systems, similarity of banking relationships and other third party service providers and minimal overlapping customers and markets.

In contrast, there is significant integration risk for Total-Savanna. Total’s main business, gas compression, is different than Savanna’s drilling and well servicing business. In addition, Total and Savanna appear to have vastly different corporate cultures. Value destruction for shareholders in business combinations is often the result of the attempt to combine disparate cultures. Total’s needless insinuations about the integrity of the Savanna Board and senior management, has exacerbated integration risk. And, as noted above, Total and Savanna have not reviewed each other’s non-public information.

Better aligned management, focus and experience with Savanna-Western

Total’s main business is gas compression. That means the focus of Total-Savanna management would be split. Moreover, Total has no apparent experience in well servicing and only a tiny contract drilling business, amounting to just 5.6% of Total’s revenue in 2016. In contrast, Savanna and Western are pure-plays on drilling and well servicing. Savanna-Western delivers a highly-focused management team with much deeper experience in drilling and well servicing. These are material strategic advantages for Savanna-Western.

Larger and more diverse fleets with Savanna-Western

Savanna-Western delivers a drilling fleet of 157 rigs, 32% larger than the Total-Savanna drilling fleet of 119. In well servicing, Savanna-Western delivers a fleet 153 rigs, 76% larger than Total-Savanna’s fleet of 87. These are material advantages for Savanna-Western, particularly in light of increasing activity levels and improving industry conditions. Among other things, Savanna-Western would have an increased ability to strategically move equipment to meet customer demand and capture growth opportunities, compared with Total-Savanna. Additionally, there is greater diversity between the Savanna-Western drilling rig fleets. Total’s stand-alone fleet is very small: just 18 drilling rigs, none of which are in the U.S., and no well servicing rigs at all.

No secrets with Savanna-Western

As a result of the strategic alternatives process, each of Western and Savanna appropriately entered into confidentiality agreements in order to allow the other access to non-public information relating the business, operations and affairs of the other in order to conduct appropriate and necessary due diligence in discharge of their respective fiduciary duties. Total has refused to provide Savanna with access to such non-public information relating to Total so that the Savanna Board could properly discharge its obligations. Total’s due diligence intransigence is yet another reason for Savanna shareholders to have more confidence in Savanna-Western than in Total-Savanna.

Better exposure to rising energy prices with Savanna-Western

Because of its stronger focus on contract drilling and well servicing, the performance of Savanna-Western would be more closely correlated to energy prices than Total-Savanna. While future price moves are hard to predict, prices firmed following agreements late last year by OPEC members and certain non-OPEC producers to curb production. In Canada, there was further encouragement from the approval of new oil export pipelines. Should price gains continue, Savanna-Western would be better positioned to benefit than Total-Savanna.

To illustrate the financial magnitude of exposure to higher activity levels, consider the 2014 (a time with stronger industry fundamentals) EBITDAS achieved by Savanna, Western and Total in the context of the Savanna’s shareholder ownership in Savanna-Western versus Total-Savanna:

  • Pursuant to the Arrangement, Savanna shareholders would own approximately 58% of Savanna-Western, which would have generated $335 million of EBITDAS on a combined basis in 2014, calculated as the sum of Western and Savanna EBITDAS in 2014 of $177 million and $158 million, respectively.
  • Under the Total Offer, Savanna shareholders would own approximately 33% of Total-Savanna and receive $0.20 per share in cash, which would have generated $260 million of EBITDAS on a combined basis in 2014, calculated as the sum of Total and Savanna EBITDAS in 2014 of $102 million and $158 million, respectively.

Better U.S. positioning with Savanna-Western

Total has no U.S. drilling business and thus Total-Savanna delivers absolutely no U.S. drilling exposure for Savanna shareholders, beyond what Savanna shareholders are already exposed to through Savanna’s existing 28 U.S. drilling rigs. In contrast, Savanna-Western delivers a U.S. drilling fleet of 33 rigs, 18% more than Total-Savanna (i.e. Savanna alone), in many of the most active regions in the U.S. This increase will be a timely benefit irrespective of energy price trends, given the new U.S. administration promises of more favourable U.S. energy policies. Industry confidence is growing and U.S. contract drilling is continuing to strengthen, with Savanna-Western better positioned to benefit than Total-Savanna (i.e. Savanna alone).

Summary Table of Advantages
Savanna-Western is Superior to Total-Savanna
Factor Savanna-
Benefit: Savanna-
Implied Premium: 10-day VWAP(a) 14.5% 1.7% 12.8 percentage points
Implied Premium: 2-day VWAP(b) 0.9% -2.6% 3.5 percentage points
Savanna shareholders’ ownership 58% 33% 25 percentage points
Customer retention and relationships with First Nations partnerships Strong Weak Better positioned
Industry consolidation effect More Less Greater impact
Full focus on drilling and well servicing Yes No Better positioned
Size of drill fleet 157 119 32% more
Size of service fleet 153 87 76% more
Integration risk Less More Better positioned
Due diligence Yes No Less risk
Correlation to rising energy prices (i.e. 2014 EBITDAS) $355 million $260 million 29% more (124% more based on Savanna ownership)
Correlation to favourable U.S. energy policies More Less Better positioned
(a) volume weighted average price as at March 8, 2017, date of announcement of the Western Offer
(b) volume weighted average price as at March 10, 2017, two trading days after the Western Offer


In pursuit of its inferior offer, Total has made a number of unsubstantiated and erroneous claims relating to the Savanna Board’s appropriate and proper conduct in the discharge of its fiduciary duties in attempting to maximize value for all Savanna shareholders, not only Total and the three Savanna shareholders who have entered into support agreement with Total (the “Locked-Up Shareholders“). Savanna believes it is necessary to set the record straight.

Total refused to participate in Savanna’s strategic alternatives process

Despite repeated opportunities, Total refused to participate in Savanna’s strategic alternatives process.

  • Savanna invited Total to negotiate a mutually agreeable confidentiality agreement and participate in Savanna’s strategic alternatives process in a manner that did not prejudice the existing Total Offer. Total declined.
  • Despite being invited to submit a non-binding proposal as part of Savanna’s strategic alternatives process, Total refused to advise Savanna of how Total was prepared to vary its offer unless Savanna agreed to various terms and conditions for the exclusive benefit of Total, including an exclusive dealing period for the benefit of Total and requiring Savanna to confirm there were no other significant terms and conditions required by Savanna.
  • As described above, Total refused to permit Savanna to conduct due diligence on Total other than through publicly available information, notwithstanding that the Total Offer would continue to include common shares of Total as consideration. Without access to non-public information about Total, the Savanna Board would not have been able to appropriately discharge its fiduciary duties in fully understanding the business, operations and assets of Total nor would Savanna’s financial advisors have been in a position to provide a fairness opinion on any transaction with Total.

Savanna would have been blindsided by Total’s material performance miss

The reason for Total refusing to provide Savanna with access to non-public information about Total and allow Savanna to conduct due diligence is now very apparent. Savanna would have been blindsided by Total’s material fourth quarter 2016 results miss, compared with consensus estimates. Savanna only learned of this performance shortfall when Total disclosed it on March 8, 2017. Had negotiations concluded with Total prior that public disclosure, Savanna’s shareholders might have been irreparably harmed.

The Savanna Board conducted itself appropriately

Since Total’s initial expression of interest in a transaction with Savanna, the Savanna Board has taken all appropriate actions aimed at, and intended to, maximize shareholder value in accordance with its fiduciary duties. Total’s mischaracterization of Savanna’s actions as ‘defensive tactics’ and ‘a desire to entrench’ is entirely inaccurate.

  • The Savanna Board established a committee comprised entirely of independent directors (the “Special Committee“) which engaged independent financial advisors and conducted a strategic alternatives process to maximize value for all Savanna shareholders. As noted above, despite repeated requests, Total declined to participate in that strategic alternatives process.
  • Western requested that Chris Strong, President and Chief Executive Officer of Savanna, join the Western board as a representative of Savanna shareholders in order to contribute to the strategic direction of the combined company and successful integration of Savanna’s operations. This appointment, along with that of another mutually acceptable nominee to Western’s Board, will also help to protect Savanna shareholders’ interests in the continuing entity, given that Savanna shareholders will hold approximately 58% of Savanna-Western.
  • While Western has indicated that it may retain certain Savanna employees, specific discussions on management roles have not occurred and any such roles, if agreed to in the future, are not a condition to completion of the Western Offer. Further, ongoing management positions were not a consideration in the Savanna Board’s determinations with respect to either the Western Offer or the Total Offer.

The termination fee is appropriate

The termination fee that is payable in certain circumstances under the Western Offer is appropriate and typical for transactions of that nature. The termination fee provided for in the arrangement agreement with Western was approximately 5.0% of Savanna’s equity capitalization at the time of entering into the non-binding letter of intent with Western and approximately 6.1% of equity capitalization at the time of entering into the arrangement agreement. This is in contrast to Total’s demand for a break fee that equated to 7.6% of Savanna’s equity capitalization at the time for a one-off, no-premium transaction prior to the Savanna Board discharging its fiduciary duties by conducting an auction or other process to determine if superior alternatives were available.

The interests of the Locked-Up Shareholders will be best served by carefully reviewing both offers.

Savanna and Western continue to reach out to the Locked-Up Shareholders to request a fair and objective consideration of the Western Offer, in comparison with the weaker Total Offer. The public disclosure indicates that the Locked-Up Shareholders may freely tender to an offer they believe to be more favourable to the Total Offer. Both Savanna and Western remain available, at any time, to review all relevant information which would be helpful to the Locked-Up Shareholders to make a truly considered decision on the two available offers.

Risks arising from Total’s waiver of 66 2/3% tender condition

Total’s actions, in particular the waiver of the minimum tender condition to the Total Offer such that the Total Offer will require only the tender of more than 50% of the outstanding Savanna Shares (excluding those owned by Total or any person acting jointly or in concert with Total), introduces significant risks to Savanna’s stability and ongoing operations, and to shareholder value. It also casts significant doubt on the ability of Total to immediately deliver what it purports to be able to contribute to Savanna.

For example, a potential outcome, if the other conditions to the Total Offer are satisfied or waived, is that Total may end up owning as little as 50.1% of the outstanding Savanna Shares with the result that:

  • Total will not have the ability to direct the operations and affairs of Savanna unless and until it gains control of the Savanna Board;
  • Synergies or cost efficiencies from an acquisition will not be realized (including that until Total acquires 100% of the Savanna Shares, Savanna will continue to be a public company subject to ongoing continuous disclosure obligations and the related costs), and, in fact, significant additional costs and expenses may be incurred in future attempts at acquiring the balance of the outstanding Savanna Shares not acquired pursuant to the Total Offer;
  • The acquisition will not lower Total’s cost of capital, but rather may be subject to a higher cost of capital, given its inability to integrate Savanna until it acquires 100% of the outstanding Savanna Shares, which may never occur;
  • Notwithstanding that Total will not have acquired 100% of the outstanding Savanna Shares, Savanna will be required to make an offer to acquire all of its outstanding senior notes at 101% of the principal amount thereof, plus the accrued and unpaid interest, as a result of the change of control occurring as a result of the Total Offer. In addition, the acquisition by Total will constitute a change of control under Savanna’s second lien credit agreement with Alberta Investment Management Corporation (“AIMCo“), such that if AIMCo does not consent thereto, the full amount owing to AIMCo thereunder will become due and payable with Savanna having to refinance the same in a circumstance where it could be a non-wholly owned subsidiary of Total;
  • Unless Total acquires 66 2/3% of the outstanding Savanna Shares pursuant to the Total Offer (excluding any held by Total or persons acting jointly or in concert with Total), Total will not have certainty that it will be able to acquire the balance of the outstanding Savanna Shares and therefore will continue to be unable to realize any benefits from the acquisition and will continue to incur costs relating thereto; and
  • If Total does not attempt to, or is unable to, acquire the balance of the outstanding Savanna Shares, the remaining Savanna shareholders will be left in a minority position in a company controlled by Total.


Two fairness opinions in respect of the Western Offer

The Special Committee received opinions from each of Peters & Co. Limited and Cormark Securities Inc. that the consideration to be received by Savanna shareholders pursuant to the Arrangement is fair, from a financial point of view, to Savanna shareholders.

The Arrangement is supported by all of Savanna’s directors and officers and by other Shareholders

All of the directors and officers of Savanna and certain other shareholders of Savanna have entered into voting support agreements with Western pursuant to which such shareholders have agreed, subject to the terms and conditions contained therein, to vote in favour of the Arrangement.

The Savanna Board Recommends the Western Offer

The Savanna Board, on recommendation of the Special Committee, has unanimously determined that the Arrangement is fair, in the best interests of Savanna and Savanna shareholders and is unanimously recommending that Savanna shareholders vote in favour of the Arrangement at a meeting of shareholders of Savanna to be held in May 2017.

Such determinations and recommendations were made following a full and comprehensive strategic alternatives review process by Savanna and based on, among other things, determination from each of Peters & Co. Limited and Cormark Securities Inc., that the consideration to be received by Savanna shareholders pursuant to the Arrangement is fair, from a financial point of view, to Savanna shareholders.

The Special Committee and the Savanna Board, on recommendation of the Special Committee, have also unanimously recommended that Savanna shareholders reject the Total Offer to purchase all of the outstanding Savanna Shares on the basis of 0.13 common shares of Total and $0.20 in cash for each Savanna Share.

Savanna shareholders should not deposit their Savanna Shares to the Total Offer. Any shares deposited to the Total Offer can be withdrawn by contacting D.F. King, the Information Agent retained by Savanna. Contact information for D.F. King is provided below.

About Savanna

Savanna is a leading contract drilling and oilfield services company operating in North America and Australia providing a broad range of drilling, well servicing and related services with a focus on fit for purpose technologies and industry-leading Aboriginal relationships.

Cautionary Statements

Forward-Looking Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “may”, “will”, “project”, “should”, “believe”, “plans”, “intends” and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this press release contains forward-looking statements and information relating to the proposed acquisition of Savanna by Western pursuant to a plan of arrangement, the anticipated timing of the Savanna shareholders’ meeting to approve the Arrangement, the appointment of nominees to Western’s board of directors, the intentions of Western with respect to employees of Savanna, the anticipated benefits of the Arrangement and the reasons why the Arrangement is more compelling than the Total Offer, including the expectation of higher customer retention and better First Nations relationships with Savanna-Western, the expectation of less business integration risk with Savanna-Western and better exposure to rising energy prices and U.S. drilling business with Savanna-Western and the potential that the Locked-Up Shareholders’ Savanna Shares may not be counted in determining if the minimum statutory condition to the Total Offer is satisfied. These forward-looking statements and information are based on certain key expectations and assumptions made by Savanna. Completion of the Arrangement is subject to a number of conditions which are typical for transactions of this nature. Assumptions have been made with respect to the satisfaction of all conditions precedent under the arrangement agreement between Western and Savanna. Although Savanna believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information as Savanna cannot give any assurance that they will prove to be correct. Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to satisfy any of the conditions to completion of the Arrangement, the emergence of a superior proposal in respect of either party or the failure to obtain approval of the Savanna shareholders or Western shareholders may result in the termination of the arrangement agreement.

Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risks that could affect completion of the Arrangement will be set forth in the Information Circular, which will be available on SEDAR at Other risk factors that could affect Savanna’s operations or financial results are included in Savanna’s annual information form and may be accessed through the SEDAR website ( The forward-looking statements and information contained in this press release are made as of the date hereof and Savanna does not undertake any obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Non-IFRS Measures

Certain measures used in this news release use and refer to supplemental financial measures used to assist in assessing financial performance of Savanna including EBITDAS (earnings before finance expenses, income taxes, depreciation, impairment losses and share based compensation and excludes other expenses (income)). This supplemental financial measure does not have a standardized meaning under International Financial Reporting Standards representing generally acceptable accounting principles for publicly accountable enterprises in Canada (“IFRS“) and therefore is unlikely to be comparable to similar measures presented by other issuers and should not be construed as an alternative to net income (loss) or other comparable measures determined in accordance with IFRS as an indicator of Savanna’s performance or as a measure of liquidity and cash flow. Readers are referred to Savanna’s management’s discussion and analysis for the year ended December 31, 2016 for the reconciliation of EBITDAS to the most directly comparable IFRS measure. Management of Savanna believes that, in addition to net earnings, EBITDAS is useful in assessing Savanna’s performance as it provides an indication of the results generated by Savanna’s principal business activities both prior to and after consideration of how those activities are financed, the effect of foreign exchange, the effect of non-cash impairment losses and how the results are taxed in various jurisdictions.

Savanna Energy Services Corp.
Chris Strong
President and Chief Executive Officer
(403) 267-6728

Savanna Energy Services Corp.
Dwayne LaMontagne
Executive Vice President and Chief Financial Officer
(403) 214-5959

Media contact:
Trevor Zeck
Longview Communications Inc.
(604) 694-6037

Shareholder inquiries:
D.F. King Canada
(Toll Free): (800) 622-1678