Where’s The Premium?

Penn West Energy Trust (PWE) announced that it would be buying Canetic Energy Trust (CNE). They’re both Canadian Income Trusts that payout a decent yield. However, there’s almost no premium offered to CNE holders. Well okay, there is a 7% premium offered to CNE holders but  compared to the 30% premium that was offered to PrimeWest Energy Trust (PWI) by the state run utility company of Abu Dhabi, its pretty sad.

I can understand, why Abu Dhabhi is keen to get its hands on $5 Billion dollars worth of Gas. They simply want to get rid of their US Dollars! And afters today’s rate cut and the subsequent drop in the Dollar Index, I want to bail too!

I have a rather small stake in CNE and I’m happy with its 15% yield. In comparison, PWE only yields 13%. On the surface, I’d rather not exchange my shares. However, yield isn’t the only variable in this equation. You need to consider payout ratio and reserve life. There’s a good chance that PWE scores better on these criteria than CNE does. In that case, it would make sense to vote in favor of the take-over.

Earlier this year, Advantage Energy Trust (AAV) took over Sonic Energy Trust for almost no premium. But that was before the PWE deal and before energy prices were so high. And being a shareholder of AAV, I was extremely happy with the outcome. But now the shoe is on the other foot!

Being a shareholder in the acquired company, I think the premium is too small and I’ll probably just vote against it anyway. Let PWE come back with a better offer!