Americas Petrogas Inc.
TSX VENTURE : BOE

Americas Petrogas Inc.

July 14, 2015 10:33 ET

Americas Petrogas Receives Support for Proposed Sale Transaction From Leading Independent Third Party Advisory Firms and Sends Letter to Shareholders

- Leading independent third party advisory firms, ISS and Glass Lewis, recommend a vote FOR the proposed sale Transaction with Tecpetrol

- Americas Petrogas dispels Horizon's unfounded claims, and mails a Letter to Shareholders

- Board of directors confirms Transaction is in the best interests of all shareholders

CALGARY, ALBERTA--(Marketwired - July 14, 2015) - Americas Petrogas Inc. ("Americas Petrogas" or the "Company") (TSX VENTURE:BOE) today issued a letter to shareholders confirming the benefits of the acquisition by Tecpetrol International S.A. and Tecpetrol Internacional S.L. (Unipersonal) ("Tecpetrol" or the "Purchasers") of the Company's wholly-owned subsidiary, Americas Petrogas Argentina S.A. ("APASA"), for an aggregate cash purchase price of US$63 million, (approximately CDN $77.6 million) (the "Transaction"); confirming the Board's unanimous recommendation that shareholders should vote FOR the Transaction; and addressing and responding to the public statement issued July 6, 2015 by Horizon Capital Management Inc. ("Horizon") in respect of the Transaction.

LETTER TO SHAREHOLDERS

Dear Americas Petrogas Shareholders:

The Annual and Special Meeting of the Shareholders of Americas Petrogas Inc. (the "Meeting") is scheduled to be held on July 29, 2015 to approve a Transaction pursuant to which Tecpetrol has agreed to acquire all of the issued and outstanding common shares of APASA for an aggregate cash purchase price of US$63 million (approximately CDN $77.6 million), subject to adjustment under the terms of the agreement of purchase and sale between the Company and the Purchasers (the "Sale Agreement"), a copy of which is filed on SEDAR.

Leading Independent Third Party Recommendation

As a further affirmation of the prior and unanimous recommendation of the board of directors (the "Board"), two leading third party advisory firms, Institutional Shareholder Services Inc. ("ISS") and Glass Lewis & Co. ("Glass Lewis"), have recommended a vote FOR the Sale Transaction. ISS and Glass Lewis are advisory firms that, amongst other services, analyze and provide voting recommendations to their subscribers including pension funds, investment managers, mutual funds and other institutional shareholders.

In its analysis, ISS stated that the Transaction will "enable the company to expand its activities on its retained conventional and unconventional properties, such as its retained 89% ownership interest in GrowMax Agricorp". Glass Lewis noted that "the Company's strategic review process leading up to the proposed agreement involved discussions with more than 80 potentially interested parties over a nearly two year period" and that the Board "has negotiated a favorable consideration in the Transaction."

Both firms agree the Transaction represents the consummation of a thorough and lengthy strategic review and sale process, and that the likelihood of a superior proposal in this current marketplace may be limited.

Board of Directors Maintains Unanimous Recommendation for Transaction

The Board continues to unanimously recommend that shareholders of the Company vote FOR the special resolution approving the Transaction and confirms its determination that the Transaction is fair, from a financial point of view, to the Company and its shareholders and that the Transaction continues to be in the best interests of the Company and its shareholders for the following reasons:

  • The cash payment to be received by the Company pursuant to the Transaction represents a 46% premium to the closing price and a 75% premium to the 30 day VWAP of the Company's common shares on the TSX-V ending June 16, 2015 (last trading day prior to the announcement of the Transaction) exclusive of future cash amounts expected to be received from Oil Plus and without ascribing any value to those assets being retained by the Company, including certain interests in conventional and unconventional oil and gas properties in the Neuquén Basin of Argentina and the Company's Bayovar potash and phosphate property in Peru;

  • The Transaction follows a lengthy and extensive global strategic review process conducted with the assistance of Jefferies LLC as strategic alternatives advisor and, in the view of the Board and management, represents the best current, real-world alternative available to the Company and its shareholders to increase future shareholder value. Furthermore, the Fairness Opinion received by Americas Petrogas from a second independent financial advisor, Mackie Research Capital Corporation ("Mackie"), concluded that the consideration to be received pursuant to the Transaction is fair, from a financial point of view, to the Company;

  • The Company has limited working capital and has not been able to secure non-dilutive financing. The Company needs to complete the Transaction to meet its short term working capital obligations and commitments relating to its assets. There is a real risk that, without the additional cash that will be received by the Company from the Transaction, Americas Petrogas could lose its entire portfolio of assets, leaving little or no value for shareholders;

  • The Transaction has been structured so that Americas Petrogas will retain a number of its high-potential Argentina assets with near-term cash flow prospects and which will involve a level of investment capable of being met, given the Company's expected post-Transaction working capital and other financial resources;

  • The Company currently has limited access to equity capital. If equity capital were to become available, the Company expects that it would be available on terms, including pricing, that would be significantly dilutive to existing shareholders; and

  • The Transaction will enable the Company to focus on several key Argentina oil and gas assets, will provide its shareholders with the significant upside potential of conventional and unconventional Argentina oil and gas and, through the implementation of a new business plan, will enable the Company to reduce its corporate G&A in Argentina and Canada, which the Board is committed to implement in an expeditious manner.

The future of your investment is at risk. Your vote on the Transaction will determine the future of Americas Petrogas. If you cannot attend the Meeting, you are encouraged to vote FOR the Transaction by completing the form of proxy sent to you and submitting it as soon as possible.

Please refer to the management information circular of the Company dated June 29, 2015 in respect of the Meeting (the "Circular") for details on how to attend the Meeting or submit a proxy, or call the Company's proxy solicitation agent, Laurel Hill Advisory Group, at 1-877-452-7184 (North American toll free) or 1-416-304-0211 (International collect).

Horizon, a foreign hedge fund with a history of exploiting vulnerable companies with attractive assets, has only recently become a shareholder of Americas Petrogas and has indicated opposition to the Transaction, with objectives that, in the view of the Board and management, may not coincide with the best interests of all shareholders. To assist shareholders in evaluating the merits of the Transaction, management and the Board wish to clarify and correct many of the errors and misrepresentations included in Horizon's recent press release, and expand upon certain information included in the Circular.

The Board and Management are Committed to the Near and Long-Term Interests of All Americas Petrogas Shareholders

Horizon has alleged that the Board is misleading shareholders and that the Board and management have put their short term interests above the long term interests of all shareholders. Horizon has also suggested that Kisan International Trading ("Kisan") has no interest in the oil and gas business and that there is a misalignment between Kisan and the Company's other shareholders. These statements are untrue. On the contrary, the Board, senior management of the Company (who collectively have a significant personal investment in the Company) and Kisan (which made a substantial financial investment in Americas Petrogas in 2009 and further investments in 2010 and 2012) have been long term shareholders, acquired their stock at prices above current market prices, have not sold shares of the Company in the past two years since the commencement of the strategic review and continue to be motivated and committed to add value to the Company for the benefit of all shareholders. On the other hand, to the best of the Company's knowledge, Horizon has held shares in Americas Petrogas for less than six months, has acquired a large number of shares following the June 17, 2015 press release announcing the Transaction, and may well have a short-term, opportunistic view of the Company. As discussed below, Horizon never contacted the Company prior to making its public statement.

Exhaustive attempts by your management and Board to identify and maximize the value of a strategic transaction demonstrate their constant objective to advance the long term interests of shareholders and to maximize shareholder value. While the Board unanimously believes that the Transaction is fair, from a financial point of view, to the Company's shareholders, it is obvious that the Board and management would have preferred a higher purchase price for APASA and its assets absent real-world considerations. However, merely waiting for a better offer to materialize or an oil price recovery to occur, or determining not to take any action whatsoever pending the outcome of the Argentine elections, were options that were not available to the Board and management given the Company's current working capital position and its inability to complete a non-dilutive financing. Moreover, the 22-month long strategic alternatives process conducted by the Company under the leadership of Jefferies LLC, one of the world's pre-eminent marketers of unconventional hydrocarbon assets, disproves Horizon's contentions that (1) there are many willing buyers of APASA and its assets, and (2) the per acre purchase price for the Transaction is below market. Comparisons to one-year-old pricing in North America are irrelevant to market conditions in Argentina. Horizon's statements to the effect that it is not an ideal time in the valuation cycle of the Company to undertake a transaction do not take consideration of the financial realities facing the Company in the immediate future. The fact (which Horizon has overlooked) is that the Company will exhaust its working capital by the end of Q3 2015 and, without additional cash, will not be able to continue its operations thereafter. This could result in the eventual loss of all of the Company's assets and the loss by shareholders of the value of their entire investment. Horizon's assertion that the Company should stay the course "until the conditions in Argentina and the global oil and gas market improve, which could be as soon as Q1 2016" entirely ignores the Company's current financial circumstances. Your Board and management is not prepared to gamble with the Company's future in this manner.

The Board and management of Americas Petrogas continue to focus on maximizing near to long-term value for all of its shareholders. The business of Americas Petrogas has not changed - it will continue to focus on the exploration and development of high-impact conventional and non-conventional oil and gas assets in Argentina.

The Transaction will allow the Company to implement a new business plan that focusses on the exploration and development of several core properties, most notably, Vaca Mahuida, Loma Ranqueles and Totoral, Yerba Buena and Bajada Colorada, which management believes have considerable exploration and development upside, near term cash flow prospects and a manageable level of investment capable of being met, given the Company's expected post-Transaction working capital and other financial resources. Under its new business plan, the Board is fully committed to and intends to reduce its G&A costs so as to operate more efficiently and in a manner commensurate with the size of the Company going forward. Additional details regarding the new business plan are provided below.

Horizon Never Contacted Americas Petrogas Prior to its Public Statement

Americas Petrogas respects the view of all shareholders; however, it is clear that many of the comments and allegations raised by Horizon in its public statement are unfounded and have been made without a full understanding of the facts or the benefit of even rudimentary discussions with Americas Petrogas' management. Most importantly, Horizon is clearly unaware of or has purposely ignored the current financial and other circumstances affecting Americas Petrogas. Prior to making its public statement, Horizon never contacted the management or Board of Americas Petrogas to understand the Company's business in Argentina, to ascertain the negotiating efforts or position of the Company, or to provide input or share its concerns.

Even though the Company's strategic alternatives process was well known and highly publicised, Horizon has never offered to introduce Americas Petrogas to the parties it claims have expressed interest in financing the Company or participating in the exploration and development of the Company's assets. Management would have welcomed any constructive outreach from Horizon in this regard.

Shareholders Should Consider the Following Specific Facts and Vote FOR the Transaction

Management and the Board encourage shareholders to carefully consider the following specific facts in evaluating the Transaction:

Offer represents a 46% premium to the closing price and a 75% premium to the 30 day volume weighted average trading price

  • The cash purchase price of US$63 million for the APASA common shares, equal to approximately Cdn$77.6 million or Cdn$0.335 on a per Americas Petrogas common share basis (in each case based on the Bank of Canada closing exchange rate on June 16, 2015, being the business day immediately prior to the announcement of the transaction), represents a 46% premium to the closing price and a 75% premium to the 30 day volume weighted average trading price of the Company's common shares on the TSX Venture Exchange on June 16, 2015, even without inclusion of the value of retained working interests in a number of conventional and unconventional properties in the Neuquén Basin of Argentina and the value of the Company's interests in its Energicon S.A. and GrowMax Agri Corp. subsidiaries (see "The Transaction preserves Americas Petrogas business and allows Americas Petrogas to retain assets with upside potential in Argentina" below and the Circular for additional information on the retained assets).

The Transaction is superior to any other alternative resulting from a 22 month process

  • The Transaction is the result of a thorough process exploring strategic alternatives conducted over the past 22 months led by Jefferies LLC, one of the world's pre-eminent marketers of unconventional hydrocarbon assets. Over 85 potentially interested and qualified bidders, including the Company's Argentina industry partners and other entities with operations in Argentina and South America, were contacted and the Company entered into approximately 30 confidentiality agreements to solicit expressions of interest for a wide variety of possible alternative transactions to maximize shareholder value. Management considered corporate transactions, farmouts, asset dispositions, restructurings, financings and other possibilities to maximize shareholder value.

  • The current Transaction allows for the consideration by the Board of superior offers to acquire the Company. No other offers have been forthcoming since the June 16, 2015 public announcement of the Transaction.

Independent Fairness Opinion

  • Mackie has provided the Board with a fairness opinion (a copy of which is appended to the Circular) which states that, as of June 28, 2015, subject to the assumptions, qualifications, considerations and limitations set forth therein, Mackie is of the opinion that the consideration to be received pursuant to the Transaction is fair, from a financial point of view, to the Company.

  • Mackie was not involved in the 22-month strategic review process undertaken by the Company, and the fee payable to Mackie in connection with its financial opinion was not contingent on completion of the Transaction or any other transaction.

The Transaction preserves Americas Petrogas business and allows Americas Petrogas to retain assets with upside potential in Argentina

  • The Transaction will provide Americas Petrogas with the working capital required to evaluate the potential of the Company's retained assets. Despite continuing efforts, Americas Petrogas has not been able to secure non-dilutive sources of funding during the past year. The Transaction has been negotiated to enable Americas Petrogas to retain a number of prospective properties in Argentina, most notably, Vaca Mahuida, Loma Ranqueles and Totoral, Yerba Buena and Bajada Colorada, which management believes have considerable exploration and development upside, near term cash flow prospects and a manageable level of investment capable of being met, given the Company's expected post-Transaction working capital and other financial resources.

  • The Transaction will allow the Company to focus on Argentine assets it can realistically afford to explore and develop with significant potential for near-term cash flow. The Transaction will also enable the Company to divest its producing assets in Medanito Sur, which would otherwise require significant additional investment in a low commodity price environment in order to maximize their value and which the Company is not presently positioned to accomplish.

If the Transaction is not completed, Americas Petrogas has no other alternatives and risks the loss of its entire portfolio of assets

  • Subsequent to the Company's May 2014 financing, the Company sought additional funds to strengthen its balance sheet. Despite Horizon's speculations to the contrary, due in large part to political uncertainty in Argentina and declining commodity prices, financing has not been readily accessible to the Company, except on terms that would significantly dilute existing shareholders. The Board and management do not believe a dilutive financing is in the best interests of shareholders.

  • The going concern note recently added to the Company's financial statements reflects the Company's declining cash reserves, limited current working capital and the possibility that an inability to meet work commitments would result in APASA being required to relinquish some or all of its the properties without compensation. It is necessary for the Company to complete the Transaction to meet its short term working capital obligations and commitments relating to its assets. There is a real risk that without the additional cash that will be received by the Company from the Transaction, Americas Petrogas could lose its entire portfolio of assets, leaving little or no value for shareholders.

Senior management and the Board of the Company are not being rewarded in connection with the Transaction

  • As noted in the Circular, the Company will be responsible for paying up to US$6 million worth of change of control and severance payments in connection with the Transaction. However, and contrary to the accusations of Horizon, these amounts consist of severance costs expected to be payable to terminated APASA employees under Argentine law and contractual change of control costs previously negotiated with APASA employees and APASA executives.

  • The completion of the Transaction does not trigger a change of control payment to the Company's President and Chief Executive Officer, its Chairman, or its Chief Financial Officer.

Business Plan and Future Path for Americas Petrogas

The closing of the Transaction will enable Americas Petrogas to implement its new business plan. Under its new business plan, the Board is fully committed to and intends to:

  • in conjunction with management, fully assess the exploration and development potential of its retained properties, most notably, Vaca Mahuida, Loma Ranqueles and Totoral, Yerba Buena and Bajada Colorada, with a view of establishing: (1) a low-cost capital investment model capable of being met, given the Company's expected post-Transaction working capital and financial resources; and (2) near term cash flow prospects;

  • reduce its G&A costs in Argentina and Canada so as to operate more efficiently and in a manner commensurate with the size of the Company going forward;

  • for retained properties considered to be non-core or requiring significant or outsized capital expenditures, continue to seek strategic alternatives for such properties to unlock value for the benefit of Americas Petrogas' shareholders (ie. farmout, carried interests, retained royalty, etc.);

  • accelerate the spin-out of GrowMax as a stand-alone entity for the benefit of existing Americas Petrogas shareholders; and

  • reinvest the proceeds of the Transaction to fund the Company's retained assets, rather than paying out this cash as a special dividend in the near term. This approach is in the best interests of shareholders as it will permit the Company to continue to build upside for its shareholders in the Company's retained prospective assets while maintaining sufficient levels of working capital to fund the Company's continuing operations.

YOUR BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF THE PROPOSED SALE TRANSACTION. YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY SHARES YOU OWN, AND WILL DETERMINE THE FUTURE FOR AMERICAS PETROGAS INC.

Shareholder Questions

The Company has retained Laurel Hill Advisory Group as proxy solicitation agent for the upcoming Meeting for fees of approximately $30,000 for the proxy solicitation service in addition to certain out-of-pocket expenses. Laurel Hill Advisory Group will also be entitled to a fee of $50,000 should the Transaction be approved by Company shareholders at the Meeting. In accordance with the Sale Agreement, the costs of Laurel Hill Advisory Group will be borne equally by the Company and the Purchasers.

Shareholders with questions or requiring voting assistance may contact the Company's proxy solicitation agent:

Laurel Hill Advisory Group
North American Toll Free Number: 1-877-452-7184
Collect Outside North America: 1-416-304-0211
Email: assistance@laurelhill.com

Forward Looking Information

Certain statements contained in this press release constitute "forward-looking statements" as such term is used in applicable Canadian securities laws. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact and should be viewed as "forward-looking statements". There are "forward-looking statements" included in this press release that relate to the benefits of the Transaction and description of the business of the Company following the Transaction, the upside potential of the Company's assets, development of an updated business plan, completion of the Transaction, the meeting date and the closing date of the Transaction. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

There can be no assurance that such forward-looking statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements contained in this news release. The forward-looking statements contained herein are expressly qualified by this cautionary statement. In particular, there is no assurance that the conditions set out in the Sale Agreement, including receipt of required shareholder and regulatory approvals, will be satisfied. There is also no assurance that the Transaction will be completed on the timelines indicated or at all. Accordingly, because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forward-looking information contained herein.

Forward-looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and the Company undertakes no obligation to update forward-looking statements and if these beliefs, estimates and opinions or other circumstances should change, except as required by applicable law.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THE RELEASE.

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