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Velvet Energy reaches out to Iron Bridge shareholders, commences buyout offer

Velvet Energy Ltd. formally commenced its offer to acquire fellow Canadian oil and gas producer Iron Bridge Resources Inc. by buying all its outstanding common shares for 75 Canadian cents per share.

Velvet Energy has filed the offer to purchase and circular on Canada's electronic document filing system for public companies, according to a May 29 news release. The company also sent a letter to Iron Bridge shareholders, touting the fully funded offer as a way to provide shareholders with immediate liquidity and certainty amid Iron Bridge's operational and financial difficulties.

In its letter to the shareholders, the Montney shale play-focused producer said that maintaining the status quo for Iron Bridge would support "shareholder value destruction," as seen in the 40% drop in Iron Bridge's share price in the 12 months before Velvet Energy made its offer.

"Your company is at an inflection point given its exhausted cash resources and poor past capital allocation decisions — you can accept our 58% premium all-cash offer or you can take the risk of attempting to raise dilutive capital in the face of uncertain and volatile markets," Velvet Energy President and CEO Ken Woolner said in the letter.

The consideration represents a 58% premium to the May 11 closing price of Iron Bridge's common shares. Velvet Energy encouraged shareholders to tender their shares before the Sept. 12 deadline.