Painted Pony's Financing for UGR Blair Creek Deal Riles Invesco

  • Shareholder plans to vote against stock issuance to fund deal
  • Investors scheduled to vote on 41 million-share plan next week

Painted Pony Petroleum Ltd.’s plan to acquire UGR Blair Creek Ltd. is facing opposition from one of its largest investors, who is raising red flags about the number of shares that will be issued to finance the deal.

Norman Macdonald, who manages an energy portfolio of about $2 billion at Invesco Ltd., is urging his fellow shareholders to vote against the equity issuance at a meeting next week in Calgary.  

“I’m shocked,” he said, adding that he was disappointed that the proposed plan hasn’t generated more vocal resistance from shareholders. “I get a sense some institutions have never withheld votes from the board and management. I seriously think some don’t know what it’s all about. It’s sad.”

Painted Pony said in March it would issue 41 million of its shares at C$5.60 apiece to finance the acquisition of UGR Blair Creek, which valued the equity portion of the deal at the time at about C$229.6 million ($168 million). The shares have since fallen 11 percent from that level to C$4.89, valuing the equity portion of the deal at about C$200 million.

Because the share issuance amounts to more than 25 percent of the company’s total outstanding stock, it’s subject to a shareholder vote that will be held on May 11 at the company’s annual general meeting. For the transaction to proceed, Painted Pony needs a majority of shareholders who cast a vote to support it, the company has said.

A representative for Painted Pony wasn’t immediately available for comment.

Uphill Battle

Macdonald will face an uphill battle to get the deal rejected, with two leading proxy advisory firms -- Institutional Shareholder Services Inc. and Glass, Lewis & Co. -- recommending that shareholders vote in favor of the deal.

Macdonald said Invesco owns about 5 million shares in the Calgary-based oil and gas explorer, which would make it Painted Pony’s third-largest holder, according to data compiled by Bloomberg. Invesco sold down its stake from 9.3 million shares late last year, when the stock was trading at about C$8, he said.

Macdonald said he faced a similar level of frustration when Cenovus Energy Inc. said it would help fund its C$17.7 billion purchase of Canadian oil assets from ConocoPhilips last month with a C$3 billion bought-deal of its shares. The issuance was less than what would require a shareholder vote on the matter. Invesco holds about 23 million shares in Cenovus, according to data compiled by Bloomberg.

“If this is a trend, I certainly don’t like the trend,” Macdonald said. “It’s a strategic shift and dilution. It’s tough to stomach.”

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