On Wednesday I made the 3 hour drive down to Calgary to attend the HWO special meeting in person. It is -25 Celsius or so with blowing snow here in Alberta, so this was no easy task. I even got turned around while walking from my car to the meeting so I got some extra time outside. Lucky me.
I’m just as uncertain on the future as before the meeting.
VN Capital Letter
Someone leaked the VN Capital email sent out on Stockhouse here. Here is what it says (emphasis mine).
Dear Fellow High Arctic Shareholders,
I write to update you about the company. Over the past few weeks, we’ve engaged in very constructive conversations with Cyrus Capital and reached an understanding with them that minority shareholder’s concerns over High Arctic’s poor corporate governance and lack of strategic direction could be best alleviated by appointing a new representative to the Board. Unfortunately, High Arctic management and Board rejected that reasonable solution in spite of a majority of shareholders in favor of it and so Wednesday’s special shareholder meeting will go forward.
In twenty two years of managing money, VN Capital has never encountered a more arrogant Board. Their shambolic attempt to reorganize the company wasted countless time and energy which the company then tried to avoid any responsibility for by blaming us for their mistakes. Finally, rejecting constructive attempts on our part along with Cyrus to amicably resolve matters shows that management and the Board is floundering, bereft of any strategic vision, concerned only about itself and is not acting in the best interest of all shareholders.
In our opinion, we believe that High Arctic’s path forward should be clear: (1.) immediately return all the existing cash on the balance sheet to shareholders; (2.) sell the remaining Canadian operations (Team Snubbing would be an obvious buyer); (3.) sell the PNG rigs; and (4.) distribute all proceeds from those sales to shareholders.
Meeting Results
There were 64.4 % of the common voted. The chair indicated that he wasn’t going to vote with his shares (1.9 mil or about 4% of the outstanding. The proposal from VN Capital to remove the current chair from the board was defeated and as such the current chair (Binnion) will stay.
As well HWO recently made a small acquisition in Canada. About half upfront and half with a potential earnout. Without all the re-org noise, it does seem like a good find.
Some questions I asked at the meeting once the formal portion was complete:
It does not sound like the Delta acquisition will impact cash the balance enough to interfere with the potential distribution of 38.2 million to shareholders.
It was mentioned that they have trouble with staffing at the senior level at times with the two businesses having such different geographies and being unrelated.
They are trying to get the PNG business to at least breakeven without rigs being under contract to make that business more sustainable.
There has been no formal announcements, but they are expecting Total to be able to use land rigs eventually at the Elk-Antelope project.
Final Investment Decision (FID) is expected Q1 2024 from Total on their July-Sept 2023 although this seems to have moved to “sometime in 2024”.
The stock is currently at $1.12 or 54.5 million market cap. If they manage to get the previously indicated $0.75 distribution out then I’m left with about 18 million in market cap. They earned over 3 mil in EBITDA last quarter without Delta. The liquidation value of the remaining assets is well above the market cap. Still limited downside, but no certainty on upside. They said “hopefully soon” for news on the reorg.
I think the ideal scenario for me would be:
Excess cash distributed to shareholders as originally outlined.
Split PNG and Canada businesses with clear indications on what the income statement would be like for both. This is what PHM did on the TSX when it split into VMD and QIPT.
PNG should list on something like the Australian exchange.
HWO remainco to be listed on TSX with the NOLs and shopped around for a potential suitor.
This provides investors the change to liquidate their holdings on one, both or neither companies. The market can set a fair price for each business independently. Each company can use shares to further align the management teams with the business performance.
Where are we gonna meet to cry over our losses? Or at least where are we gonna meet so I can cry on your shoulder?
Thanks for reading.
Dean
*long HWO.to
Activism sounds like a giant headache.
Thank you for attending the meeting in person.
I find it funny that VN thought they had an understanding with Cyrus who then voted against their proposal...