Realm Energy International Corporation
TSX VENTURE : RLM

Realm Energy International Corporation

August 26, 2011 04:47 ET

San Leon Energy plc and Realm Energy International Corporation Announce Merger

LONDON, UNITED KINGDOM and WHITE ROCK, BRITISH COLUMBIA--(Marketwire - Aug. 26, 2011) -

NOT FOR DISTRIBUTION OR RELEASE IN OR INTO THE UNITED STATES, AUSTRALIA, RUSSIA, SOUTH AFRICA OR JAPAN

San Leon Energy plc ("San Leon" or the "Company"); (AIM:SLE) and Realm Energy International Corporation ("Realm"); (TSX VENTURE:RLM) are pleased to announce that they have entered into an agreement (the "Arrangement Agreement") pursuant to which San Leon will acquire all of the issued and outstanding shares of Realm (the "Acquisition").

Pursuant to the Acquisition, each Realm shareholder will receive, for each Realm share, at such shareholder's election: i) C$1.30 in cash; or ii) 3.30 ordinary shares in the capital of San Leon (or the same number of exchangeable shares of an indirect Canadian subsidiary of San Leon exchangeable on a one-for-one basis directly for ordinary shares in the capital of San Leon, subject to adjustment); or iii) a combination thereof; subject to a maximum of C$17.7 million in cash (subject to adjustment) being paid to Realm shareholders in aggregate. The Acquisition will be implemented by means of a Canadian plan of arrangement and result in Realm becoming an indirect subsidiary of San Leon, with closing expected in November 2011.

The terms of the Acquisition value Realm at approximately C$1.30 per share, based on the San Leon volume-weighted average price ("VWAP") for the 60 trading days prior to and including 25 August 2011 of 25 pence per share and a Canadian Dollar per British Pound exchange rate of 1.603. Up to approximately 481 million newly issued San Leon shares are expected to be issued to Realm shareholders (assuming that such shareholders elect to receive the consideration payable to them fully in new San Leon shares).

The Board of Directors of each of San Leon and Realm have unanimously approved the Acquisition. The Board of Directors of Realm has received the opinion of its financial advisors that the consideration to be received pursuant to the Acquisition is fair, from a financial point of view, to Realm shareholders and has resolved to recommend that Realm shareholders vote in favour of the Acquisition.

The directors and officers of Realm, corporations controlled by them and certain other significant shareholders of Realm, together holding or controlling an aggregate of 40,912,276 Realm shares (being more than 37.7% of the issued Realm shares) have agreed to vote in favour of the Acquisition.

Acquisition Rationale

The Board of Directors of San Leon believes that the acquisition of Realm has significant commercial logic and would bring together two complementary portfolios to create a focused and large shale acreage position in Poland's Baltic Basin. It is expected that the enlarged group will benefit from its combined operational and technical expertise as well as in-country experience in order to accelerate work programmes and de-risk the acreage. The combined position in Poland is also expected to provide cost synergies for the aforementioned work programmes.

This increased focus on shale may be further enhanced through the addition of any successful licence applications that Realm has submitted in Spain and France. To complement this large shale acreage position and associated work programmes, San Leon expects to continue to develop its conventional acreage in Poland, Albania, Morocco and Ireland in order to seek to build reserves, produce near-term cash flow and provide funding for work programmes going forward. The Board of Directors of San Leon believes that the enlarged group will be well capitalised to carry out its existing licence obligations through the addition of approximately C$24 million of cash currently on Realm's balance sheet.

The enlarged company will hold 28 concessions and licences in seven countries, with a continued focus on Poland, Morocco and Albania. San Leon is currently undertaking an extensive exploration programme and expects to drill 16 wells over the next twelve months.

The Board of Directors of San Leon believes that the combination of San Leon and Realm presents a unique opportunity to create significant value for shareholders in both companies.

The benefits of the Acquisition for Realm shareholders include:

  • The implied value of the Acquisition is approximately C$1.30 per Realm share(1).
    • a premium of 46.1% to the current share price of Realm(2);
    • a premium of 116.7% to Realm's closing share price the day prior to San Leon's first approach to Realm's Board(3); and
    • a premium of 136.4% to Realm's closing share price the day prior to the announcement of the initiation of a strategic review of Realm's Polish interests(4).
  • The Acquisition will result in Realm shareholders owning approximately 36.9% of the enlarged entity(5), assuming that all shareholders elect to receive the consideration payable to them fully in new San Leon shares and all of the issued and outstanding options and warrants to acquire Realm shares are exercised.
  • The exchangeable shares offer certain Realm shareholders who are residents of Canada for the purposes of the Income Tax Act (Canada) the opportunity to obtain a full or partial deferral of taxable capital gains for Canadian federal income tax purposes in certain circumstances.
  • The ability to receive, at the election of Realm shareholders, San Leon shares or exchangeable shares gives Realm shareholders the opportunity to continue to participate in the future growth of the development of the Realm assets through an entity with cost and operational synergies.
  • The Arrangement Agreement provides that Realm shareholders will have the right to dissent from participating in the Acquisition and to elect to receive a fair value payment for their shares from Realm post-closing.

Acquisition Highlights

The Board of Directors of San Leon believes that the combination of San Leon and Realm will:

  • strengthen San Leon's focus and position as one of the leading shale players in Poland;
  • materially increase San Leon's acreage in Poland's Baltic Basin;
  • leverage San Leon's in-country technical team to add material value to Realm's assets;
  • have the potential to add further shale acreage to the portfolio through any successful licence applications that Realm has made in Spain and France; and,
  • provide cost and operational synergies for upcoming seismic and drilling programmes.

San Leon will acquire the following:

  • 4 exploration licences across Poland and Germany;
  • 10 licence applications in Spain and 10 licence applications in France;
  • >2.4 million gross acres under application in France and >2.0 million gross acres under application in Spain; and,
  • approximately C$24 million of cash currently on Realm's balance sheet.

Realm's asset base is detailed in the table below:

Country Licence Basin Net
Interest
Operator Gross
Acres
Net
Acres
Poland Gniew Baltic 100% Realm 294,296 294,296
Ilawa Baltic 50% LNG Energy 161,109 80,555
Wegrow Podlasie 50% LNG Energy 180,136 90,068
Germany Aschen Lower Saxony 100% Realm 15,888 15,888
Total 651,429 480,807

Additional Terms of the Agreement

Pursuant to the Arrangement Agreement, Realm will call a meeting of its shareholders to consider and, if determined advisable, approve the plan of arrangement implementing the Acquisition. It is expected that the information circular relating to the Acquisition will be mailed to Realm shareholders in September 2011 and that, subject to the satisfaction, or where relevant waiver, of all relevant conditions, the Arrangement will become effective and the Acquisition completed in November 2011.

Conditions

The Acquisition is subject to a number of customary conditions, including the receipt of approval by the Realm shareholders, receipt of approval of the Court in the Province of British Columbia, Canada and receipt of stock exchange approvals.

Non-Solicitation Agreement and Termination Fees

The Arrangement Agreement contains customary non-solicitation provisions which restrict Realm from soliciting or entering third party acquisition proposals, subject to a "fiduciary out" and a matching right in favour of San Leon. Pursuant to the Arrangement Agreement, each of Realm and San Leon has agreed to pay the other a termination fee of C$4.0 million if the Arrangement Agreement or terminated in specified circumstances.

Realm Share Options and Warrants

In connection with the Acquisition, outstanding options and warrants to acquire an aggregate of 37.4 million Realm shares will become options and warrants to acquire San Leon shares on substantially equivalent terms and conditions.

Oisín Fanning, Executive Chairman of San Leon, commented:

"We are delighted to have reached agreement with the Realm board and its major shareholders. This is San Leon's most significant acquisition to date and offers a unique opportunity to increase our exposure to the prospective upside that the Baltic Basin offers, which we expect will be enhanced by any successful shale licence applications in Spain and France. We also expect this deal to bring significant cost and operational synergies across the upcoming drilling programme whilst further enhancing the technical expertise in the Company.

The Board of San Leon believe that this acquisition will create significant value for shareholders in both companies without reducing exposure to the potential upside, whilst the Company continues to develop its conventional acreage across its portfolio in order to seek to build reserves, produce near-term cash flow and provide funding for work programmes going forward."

Craig Steinke, Executive Chairman and CEO of Realm, commented:

"A combination of Realm and San Leon provides shareholders with diversity and substantial scale in the Baltic Basin of Poland, which is generally viewed as one of the most opportune new shale plays in Europe. As well, currently under government application in France and Spain, Realm has targeted over 4.4 million acres of organic rich shales, which subject to final awards, provides vast additional resource potential."

Information with respect to Realm

Realm is an independent oil and gas exploration and appraisal company listed on the TSX Venture Exchange (ticker symbol: RLM). The company holds 4 exploration licences across Poland and Germany as well as 10 licence applications in Spain and 10 licence applications in France. Its strategy is to focus on shale exploration and development opportunities.

Realm has been awarded 635,000 gross acres in Poland (465,000 net) and 15,888 gross acres in Germany (15,888 net). In addition, Realm has >2.4 million gross acres under application in France and >2.0 million gross acres under application in Spain. Realm's asset base is detailed in the table below:

Country Licence Basin Net
Interest
Operator Gross
Acres
Net
Acres
Poland Gniew Baltic 100% Realm 294,296 294,296
Ilawa Baltic 50% LNG Energy 161,109 80,555
Wegrow Podlasie 50% LNG Energy 180,136 90,068
Germany Aschen Lower Saxony 100% Realm 15,888 15,888
Total 651,429 480,807

Overseas Shareholders of Realm

Participation in the Acquisition and the plan of arrangement effecting the Acquisition by persons who are not resident in Canada or the United Kingdom ("Overseas Shareholders") may be affected by the laws of the jurisdictions ("Overseas Jurisdictions") in which they are resident. Such persons should inform themselves about and observe any applicable requirements. Further details in relation to Overseas Shareholders will be contained in the information circular to be forwarded to Realm shareholders.

Any failure to comply with applicable restrictions may constitute a violation of the securities laws of any such Overseas Jurisdiction. To the fullest extent permitted by applicable law, the companies involved in the Acquisition disclaim any responsibility or liability for the violation of such restrictions by any person.

This announcement has been prepared for the purposes of complying with Canadian law and the AIM Rules for Companies and the information disclosed herein may not be the same as that which would have been prepared in accordance with the laws of other jurisdictions.

Unless otherwise determined by San Leon, and permitted by applicable law and regulation, the San Leon shares to be issued in connection with the Acquisition will not be issued directly to Realm shareholders in, and will not be capable of acceptance in or from, any Overseas Jurisdiction where to do so would constitute a breach of securities laws in that jurisdiction. Copies of this announcement are not being, and must not be, mailed or otherwise forwarded, distributed or sent in, into or from any Overseas Jurisdiction where to do so would constitute a breach of securities laws in that jurisdiction. Persons receiving this announcement (including custodians, nominees and trustees) should observe these restrictions and should not send or distribute this announcement in, into or from any such jurisdictions.

Neither the San Leon shares nor the exchangeable shares to be issued by a subsidiary of San Leon pursuant to the Acquisition ("exchangeable shares") have been, nor will they be, registered under the US Securities Act of 1933 (the "Securities Act") or under any of the relevant securities laws of any state or other jurisdiction of the United States. Neither the US Securities and Exchange Commission nor any US state securities commission has approved of the San Leon shares or the exchangeable shares or determined if this document is accurate or complete. Any representation to the contrary is a criminal offence in the United States. The San Leon shares and the exchangeable shares to be issued pursuant to the plan of arrangement are intended to be issued in reliance upon the exemption from the registration requirements of the Securities Act provided by section 3(a)(10) thereof and only to the extent that corresponding exemptions from the registration or qualification requirements of state "blue sky" securities laws are available. Neither the San Leon shares nor the exchangeable shares may be offered or sold in the United States except pursuant to an exemption from the Securities Act or in a transaction not subject to the registration requirements of the Securities Act.

General

The Acquisition is subject to the terms and conditions of the Arrangement Agreement which will be described in the information circular which Realm intends to mail to its shareholders in September 2011. That information circular, a form of proxy and a form of election and transmittal letter, to be included therein, will be made available to all Realm shareholders at no cost to them. Realm shareholders are advised to read the information circular and the accompanying documents when they are sent to them because they will contain important information. The documents will be posted under Realm's profile at www.sedar.com.

This announcement is not intended to be and does not constitute, or form part of, an offer to sell or an invitation to purchase or subscribe for any securities or the solicitation of an offer to buy or subscribe for any securities pursuant to the Acquisition or otherwise, nor shall there be any purchase, sale or exchange of securities or such solicitation in any jurisdiction in which such offer, solicitation or sale or exchange would be unlawful prior to the registration or qualification under the laws of such jurisdiction.

The distribution of this announcement in jurisdictions or into certain jurisdictions may be restricted by the laws of those jurisdictions. Accordingly, copies of this announcement and all other documents relating to the Acquisition and/or the plan of arrangement are not being, and must not be, released, published, mailed or otherwise forwarded, distributed or sent in, into or from the United States, Australia, [South Africa, Russia] or Japan. Persons receiving such documents (including, without limitation, nominees, trustees and custodians) should observe these restrictions. Failure to do so may constitute a violation of the securities laws of any such jurisdiction.

Forward Looking Statements

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of Realm and San Leon and certain plans and objectives of the boards of directors of Realm and San Leon. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "will", "may", "should", "would", "could" or other words of similar meaning. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Realm's and San Leon's abilities to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this announcement. There are risks also inherent in the nature of the Acquisition, including failure to realize anticipated synergies or cost savings; risks regarding the integration of the two entities; incorrect assessments of the values of the other entity; and failure to obtain the required securityholder, Court, regulatory and other third party approvals. Realm and San Leon assume no obligation and do not intend to update or correct these forward-looking statements, except as required pursuant to applicable law.

Notes to Editors

San Leon

San Leon is an independent oil and gas exploration and production company listed on London's Alternative Investment Market (ticker symbol: SLE). The company holds exploration assets in Poland, Morocco, Albania, Ireland, and Italy. San Leon's focus is on both shale and conventional exploration across its portfolio.

Realm

Realm is a Canadian domiciled global energy company focused on driving the exploration and development of major shale plays throughout Europe and emerging countries. The Company presently has projects in Poland and Germany and is in the process of acquiring additional petroleum and natural gas rights in other European basins which have been identified as high potential. Realm is committed to leveraging the most advanced shale technology to bring these resources into production. Visit Realm's website at www.realmenergy.ca.

Advisors

San Leon has engaged Macquarie Capital (Europe) Limited as its exclusive financial advisor in connection with the Acquisition. Realm has engaged GMP Securities L.P. as its exclusive financial advisor in connection with the Acquisition.

(1) Based on San Leon's 60-day VWAP prior to and including 25 August 2011 of 25 pence per share and a Canadian Dollar per British Pound exchange rate of 1.603
(2) Based on Realm's mid-market closing price on 25 August 2011 of 0.89 Canadian dollars per share, as provided by the Toronto Stock Exchange
(3) Based on Realm's mid-market closing price on 16 June 2011 of 0.60 Canadian dollars per share, as provided by the Toronto Stock Exchange
(4) Based on Realm's mid-market closing price on 26 May 2011 of 0.55 Canadian dollars per share, as provided by the Toronto Stock Exchange
(5) Assumes all outstanding Realm options and warrants are exercised

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 this release.

Contact Information

  • San Leon Energy Plc
    Oisin Fanning
    Executive Chairman
    + 353 1291 6292

    Macquarie Capital (Europe) Limited
    Paul Connolly
    Ben Colegrave
    +44 (0) 20 3037 2000

    College Hill Associates
    Nick Elwes
    +44 (0) 207 457 2020

    Realm Energy International Corporation
    Craig Steinke
    Executive Chairman and CEO
    + 1 (604) 637-4974
    www.realmenergy.ca

    GMP Securities L.P.
    Wade Felesky
    + 1 (403) 543-3043