Canadian 88 Rejects Canadian Superior Bid

Calgary-based Canadian 88 Energy Corp. Thursday rejected a hostile takeover bid from Canadian Superior Energy Inc. after stockholder Duke Energy, which owns 20% of Canadian 88 shares, said it did not support the proposal. Canadian Superior, begun by Canadian 88 founder Greg Noval, is less than one-tenth the size of Canadian 88, but nevertheless, it launched its takeover in April (see NGI, April 30). Noval resigned from Canadian 88 last year.

The Canadian 88 board of directors, which unanimously rejected the offer, said that the proposal did not offer "enhanced liquidity or incremental value" to shareholders. The board also noted that Canadian Superior had offered "no cash inducement...and the implied share exchange ratio is well below historical average ratios." Canadian Superior planned to offer 2.75 of its shares for each share of Canadian 88, a deal worth about C$4.95 a share, or C$700 million total. Canadian 88 also charges that two lawsuits filed by Canadian Superior are preventing it from attracting a suitable buyer.

Last October, the Canadian 88 board appointed a special committee to maximize shareholder value, retaining CIBC World Markets and Credit Suisse First Boston to advise the company on strategic alternatives, and ultimately, to solicit potential buyers. Then, in February, Canadian 88 announced an agreement to sell its interests in two Alberta properties, Waterton and Caroline, to Hunt Oil Co. for C$176 million. The sale closed April 27.

When it announced its sales agreement, Canadian 88 acknowledged that Canadian Superior had the right of first refusal on the Waterton assets, and it provided information on them to Canadian Superior. It said it also invited Canadian Superior representatives to attend the data room, with access to Canadian 88 employees, in a process identical to the process that Hunt Oil and other parties completed. However, Canadian 88 said that Canadian Superior chose not to attend the data room or exercise its right of first refusal to the assets.

The two lawsuits filed by Canadian Superior concern the Waterton assets and Canadian 88's Blackstone assets. Canadian 88 officials said the lawsuits were "without merit," and since Canadian Superior's merger proposal, Canadian 88's special committee has attempted to resolve the litigation.

"These litigious actions have become an issue for potential corporate buyers and, in the opinion of the board have so far prevented the company from completing negotiations to sell Canadian 88 to any of the parties that would have made cash proposals to acquire the company," Canadian 88 said in a statement. "Canadian 88 is continuing with an orderly, competitive process designed to maximize shareholder value and is pursuing credible proposals to realize value for shareholders. Canadian 88 will keep its shareholders apprised of this process."

In response on Friday, Canadian Superior said it was "surprised" by Canadian 88's action since it had shown a "clear lack of progress in achieving strategic corporate alternatives" since it began looking for buyers.

"The Canadian Superior proposal offers Canadian 88 and Canadian Superior shareholders the ability to go forward with an exciting new company led by a skilled management team...that will grow the company and not sell it off or farm it out piece by piece."

Richard Watkins, Canadian Superior's vice president of corporate development, dismissed the issue of current litigation between the companies as having any bearing on the process, and said that in his opinion, Canadian 88's process "has failed as a result of a broad-based asset sale process implemented by the company, which has resulted in the company failing to properly attract corporate buyers." He said Canadian Superior would re-evaluate its proposal to Canadian 88 before proceeding further.

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