Calfrac Well Services announced on Wednesday it is commencing legal action against one of its largest shareholders.
The move came after Calfrac closed a $650 million refinancing, which it said Wilks Brothers LLC had tried to sabotage.
The Texas-based Wilks Brothers own 19.9 percent of the company, and last year had disclosed they were considering becoming an activist investor.
On May 9, the day the financing was announced, the Wilks issued a press release urging Calfrac to initiate a strategic alternatives process in order to improve its results.
The timing of the press release is a key issue for Calfrac, analysts with GMP FirstEnergy noted.
The Wilks and Calfrac signed a confidentiality agreement with Calfrac in February. Calfrac alleges they were aware of the upcoming financing as of February 23, but didn’t raise any of their concerns until the day of the deal.
“Calfrac and its management have improved operations, but the improved operational results are emblematic of a rising tide analogous to its comparable peer class,” Wilks Brothers said in May.
“We believe that the company should explore all organic and inorganic avenues that have the ability to enhance shareholder value. This is why we have incessantly encouraged CalFrac to hire US and Canadian financial advisors to thoroughly vet all alternatives including the separation of CalFrac's US and Canadian operations into two public entities.”
Calfrac said today that while all shareholders are entitled to provide their own views, Wilks Brothers' protestations were tainted by self-interest.
“In 2011, the founders of Wilks Brothers sold their large U.S.-based fracturing business, and exited the fracturing industry. In May 2016, Wilks Brothers re-entered the U.S. fracturing business by establishing Profrac Services, LLC. Profrac is a competitor to Calfrac. Wilks Brothers has been aggressively seeking to grow Profrac's business.”
Whatever the motivations of Wilks Brothers in issuing the press release, Calfrac said it negatively impacted the financing. The company is commencing an action against the company in the Court of Queen’s Bench of Alberta in an effort to recover incremental costs.
“We cannot recall a precedent where a company has sued one of its largest shareholders,” GMP FirstEnergy’s Ian Gillies wrote on Wednesday. Analysts view the development as positive, as it signals that corporate actions could be forthcoming.