Dear fellow investors,
I am trying to get in contact with other Bowood shareholders to compare notes and share views about the upcoming vote about the contemplated transaction with Legacy.
To summarize, I believe a) Bowood shareholders should vote against this deal and b) Bowood should find a new financial advisor and sell the company as a whole or in pieces to the best bidder.
Reasons I don't like the transaction:
1) The transaction does not address the funding issue of the company. Instead, Bowood will own more land which it can't develop because the transaction will not provide funding to drill even one well. Current management has no plan how to address the funding question and there is no commitment from Legacy for any funding in the future either.
2) The transaction structure is ill-conceived: the planned Rights Offering at $0.12 is not going to work if shares are trading below $0.12 (there is no backstop from Legacy or any other party).
3) The transaction is significantly diluting existing shareholders: Current shareholders will only own around 55% of the company post transaction (assuming no Rights Issue). Bowood currently has no capacity to assume a meaningful amount of debt financing and so the company will need to raise further equity. To drill a well costs around $7-10m, so Bowood will need $50-100m to just drill 5-14 wells on its undeveloped land. Assuming a $100m capital increase post transaction and assuming a subscription/issue price of $0.12/share would dilute current shareholders further down from 55% to 21% (or even lower when assuming a lower subscription price).
4) Legacy acquires control over Bowood at a negative premium: Legacy's undeveloped land is transferred to Bowood at around $350/acre while Bowood's market price is implying an undeveloped land value of around $150-200/acre (arrived at after deducting $15m of NPV10 for 1P reserves from Bowood’s Enterprise Value). If the value of $200/acre is applied to the land transferred by Legacy to Bowood and then divided by the number of shares Legacy receives, we get to an implied price paid per Bowood share of $0.07, a large discount to market. This makes no sense. Legacy should pay a premium to acquire control of Bowood (i.e. it should receive a lot less Bowood shares for transferring the land).
If the company would sell itself, assuming $350/acre as a potential value of Bowood's land, then Bowood's land would be worth around $37m. Adding $15m, Bowood's net present value for its proven oil and gas reserves, would result in a value per share of around $0.17. Note that land transactions in the region have taken place at values significantly above $350/acre and even Legacy paid a higher implied land value when entering in the JV with Bowood.
The point is that Bowood could likely be sold at a significant premium to its current share price while it is hard to see how the contemplated highly dilutive transaction would generate any shareholder value.
If you are a Bowood shareholder, I would look forward to get in contact (my email: schulzrobert10[at]gmail.com) to discuss views and what could be done to improve shareholder value.
Best regards,
Robert
