Ember enters fight for Cordero
Bid could stymie Enmax takeover plans
Geoffrey Scotton
Calgary Herald
Wednesday, May 28, 2008
City-owned utility Enmax Corp. is pondering its next steps after an unsolicited bid for gas producer Cordero Energy Inc. on Monday by Ember Resources Inc. potentially derailed Enmax's plans to acquire Cordero for about $140 million.
Ember, a coal bed methane developer, said it would offer 2.56 Ember shares for each share of Cordero, which translates to a value of about $5.25 per share for Cordero based on the value of Ember shares in the five trading days prior to the offer. That's well above the already-sweetened $4.75 per share -- but all cash -- offer Enmax made May 18 and which closes today.
Moreover, Ember said it has nearly 26 per cent of Cordero's shares locked up through holders that have agreed to tender to the Ember offer. Among those holders are believed to be institutional shareholders ARC Financial Corp. of Calgary and Howson Tattersall Investment Counsel Ltd., which together hold almost 23 per cent.
Sources suggest Ember's deal for shares may be more attractive to those institutions than Enmax's cash offer because of tax implications.
A spokesman for Enmax was tight-lipped about what the utility's strategy may be going forward. The utility owns five per cent of Cordero and needs to acquire 66 per cent for the deal to go through.
"Our offer is still on the table and beyond that, we've got nothing to add at the moment," Enmax vice-president of public affairs Peter Hunt told the Herald on Tuesday. "We have no comment to make on the Ember offer. We knew that a couple of companies were looking at alternatives."
Hunt confirmed Enmax's window for any and all offers will close June 13 due to securities regulations and hinted Enmax believes it will still be successful.
"If you look at the the way the price of Cordero was moving in recent days, before (Monday's) announcement, you can see it was trending very close to the offer price, which indicated the offer would close successfully."
On Tuesday, the market appeared to be discounting the Ember offer as Cordero shares opened higher at $4.86 per share, up from Monday's $4.73-per-share close, before retreating to end Tuesday's session at $4.83, up a dime.
That's still well below the $5.24 value implied by Ember's close Monday. However, Ember's shares dropped 11 cents Tuesday to $1.94 per share, which at the stated exchange ratio, equates to $4.97 per share for Cordero.
Ember believes the assets of the two companies would work well under the same umbrella.
"The combination of Ember and Cordero would result in the creation of a highly focused and growth-oriented coal bed methane (CBM) resource company operating in a natural gas pricing environment that has seen dramatic improvements over the last three months," Ember said in a statement. "Combining the two CBM companies would result in an excellent geographic fit of complementary assets."
Raymond James Ltd. analyst Stephen Calderwood agreed, saying Ember and Cordero would be a good combination.
"The most obvious advantage for the combined company is lower relative debt . . . providing the opportunity for a 'larger Ember' to increase its drilling activity to fuel future growth," Calderwood said in an analysis. "This event is likely to be positive, but it could precipitate another increase in the Enmax cash offer."
Enmax has come under some criticism for its original $4.35-per-share offer for Cordero, made in February.
That offer was unsuccessful, however Enmax extended it several times in the hopes natural gas prices would decline and convince shareholders to tender to the city utility's offer. Ten days ago, Enmax upped its bid in the wake of continued strength in gas prices.
At the time, Mayor Dave Bronconnier said the Cordero gambit was not the only one Enmax and the city were pursuing to provide a stable and predictable supply of natural gas to the city-owned utility. "This is not the only play we're looking at," Bronconnier told the Herald.
