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Velvet Energy offers to buy out fellow Canadian producer Iron Bridge for C$120M

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Velvet Energy offers to buy out fellow Canadian producer Iron Bridge for C$120M

The Calgary, Alberta-based producer Velvet Energy Ltd. is offering to buy all the outstanding common shares of fellow Canadian company Iron Bridge Resources Inc. in a C$120 million all-cash deal.

Under its proposal, Velvet Energy would buy Iron Bridge's common shares for 75 Canadian cents per share in cash, representing a 58% premium to Iron Bridge's closing price on May 11, the trading day before Velvet submitted its proposal to Iron Bridge's board of directors on May 13. The deal value is equivalent to a multiple of 12.2x Iron Bridge's 2018 consensus EBITDA, according to a May 22 news release.

Since it submitted its acquisition offer, Velvet has repeatedly tried to work with Iron Bridge to explore strategic transactions to maximize value for Iron Bridge shareholders. Iron Bridge, however, requested a confidentiality agreement with a standstill, Velvet said in a news release. Velvet decided to present its offer directly to Iron Bridge shareholders after Iron Bridge refused to "constructively engage" about a possible transaction, the company said.

Velvet's all-cash offer would provide Iron Bridge shareholders with immediate liquidity, given "significant uncertainty as to Iron Bridge's ability to finance and execute its business plan," according to the company. Velvet said Iron Bridge has liquidity of only C$2.0 million, based on its most recent earnings report, and an unsustainable cost structure.

Velvet plans to officially commence the offer to shareholders in the next few days with the mailing of the takeover bid circular. Under Canadian securities laws, the offer will remain open for acceptance for 105 days from the date of commencement unless the board of Iron Bridge elects to shorten the minimum bid period to 35 days.

BMO Capital Markets is acting as Velvet's financial adviser, while Kingsdale Advisors is serving as the strategic communications adviser and information agent and depositary.

Velvet's exploration and production operations are focused in the liquids-rich gas and light oil window of Alberta's Deep Basin. Iron Bridge is an oil and gas company whose portfolio is in Elmworth, Alberta, in the Montney oil play.