Strategic alternatives announcement moves Opti Canada.
Opti Canada (TSX: T.OPC, Stock Forum) shares rallied 8.95% to $2.06 in Wednesday trading. The company announced Tuesday after the close that it was “considering strategic alternatives for enhancing shareholder value” – the often-used shorthand when a company is putting itself up for sale or merger. In a press release, Opti said it does not believe its share price fully values the company.
The Calgary-based firm, which is a minority partner in Nexen’s (TSX: T.NXY, Stock Forum) Long Lake project in Alberta’s oil sands, also said that it would accept offers for raising new capital or receiving better terms on its bank credit line.
Shortly after the announcement, the naysayers dominated conversation on the company’s Bullboard. Ticker100 sneered: “Regarding Opti's public "For Sale" sign and common sense, would you as the owner sell before or after your business becomes a profitable and viable business? The operative word is "profitable". Think again if you believe someone will come along and pay all kinds of money for a "black box" operation that is not a proven producer. […] Run for the exit before the door is closed in your face.”
Earlier this year, the companies put the project on hold because of problems associated with its water treatment equipment.
“If they had the option to go it alone, they would have. Unfortunately, they don't,” noted mrmomo. “At this point in time, they're really unable to service that huge debt load, it's litterally poisoning the company to death. At 180mm a year in interest payouts, it's killing any flexibiltiy or options the company has. With the recent news that the company was not able to increase production enough or as expected, the writting was then on the wall that a sale would be close. If they would have been able to pump out close the 10k per day at least for next year, they would not be talking sale at this time. It's a shame really, because of instead of selling itself in about 3-5 years for over $25, they are going to be sold for barely $5 now.”
Would Nexen want to acquire the 15% of the project it doesn’t already own by buying out Opti Canada?
Knowsnothing613 thinks it may come to pass. “Personally, I think this was Nexen's masterplan. And I think this announcement by Opti was it putting up a white flag, and asking any interested parties to make them a decent offer, and they will sell out. I don't think it's gonna be $8/share. Probably cheap like $3.5-$4.5/share (I made this up). But that's still better than yesterday's closing price.”
Many posters tossed around valuation ideas. Lochalsh wrote:“Yes, [the buyout of] Nova was nice and one of the directors from Nova is on the Opti board. If the same company that bought Nova were to buy Opti, the debt would not be an issue, they would be buying it for the future oil stream. Hard to put a value on it however I can see $3-5 plus debt. The other thought is they could sell a portion of upgrader etc. and keep the oil. Again, who knows. Have a great day.”
And Millions21 agreed: “If book value is actually 8 to 10 then it would not be unrealistic to see a sale in the 3.00 range as you gotta cut the value in half just because of the economy and debt as cash is king in this economy and no one is paying big multiples on earnings/ asset values right now... but i hope i am wrong but ultimately why buy a company for 8.00 a share when you could buy it on the open market and even with the run up you would get it at a much lower value.”
