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  5. GXE: I have another question about the proposed deal to buy part of Gear and spin out the rest into a new company. [Gear Energy Ltd.]
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Q: I have another question about the proposed deal to buy part of Gear and spin out the rest into a new company. Dave in his question on december 5th made it sound that us existing share holder will get 61 cents per share and 1 for 3 shares in the new company. The way I read the press release on the Gear website it is 61 cents or 1 for 3 shares in the new company. I hope Dave is right because then the current value of Gear shares is much greater. How do you read it? Is it and or or? Also what happens if the mail strike is prolonged and we don't get this circular in the mail. My email is full of so much junk that I could easily miss an email from Gear Energy and not vote. I think I am not the only one who would miss it. Also I know how to go to sedar's clunky website and look for stuff but everyone might not know/or want to do that. It seems a little fishy/stinky that this is being presented during a mail strike and they want to finalize this quickly (Jan or Feb). If Cenovous is the buyer then they will be able to take advantage of all the tax pools that Gear accumulated from their years of losses. If so they can pay more than $110 million for 3500ish BOE of production. Heck that is only a little over $30,000 per flowing barrel plus the benefit of using the tax pools. I understand why the purchaser wants this to go through quickly!!!!
Asked by Paul on December 09, 2024
5i Research Answer:

While the mail strike is unfortunate, we doubt it played a role in the takeover offer or timing. The strike is unusually long but of course the companies did not know that would be the case when they entered into the deal. GXE shareholders are to receive $0.607 cash per share, AND 0.3035 Newco shares, or a combination thereof. The cash/share allocation is subject to limits, so most investors will receive a lower amount of cash and more shares. The cash limit is $80M, and thus $30M of the $110 compensation is to go to Newco for working capital purposes. Certainly the buyer here will benefit from tax loss carryforwards. But keep in mind taxes are typically paid on a calendar year basis or on an buyer's fiscal year basis. With a close expected in February, a few extra months (if the deal were to proceed more slowly) is likely not going to make a material difference to the buyer in respect to the value of the tax pools. 

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