Vermilion Energy - Spartan - a value-accretive transaction

On 16 April 2018 Vermilion announced the proposed acquisition of Spartan Energy, a south-east Saskatchewan producer with estimated 2018 production of c 23kboed (91% oil) for a consideration of C$1.4bn, funded through C$1.23bn in Vermilion shares and the assumption of c C$175m of debt. The deal was priced at a 5% premium to Spartan’s closing price and is recommended by its board. In this note we incorporate Spartan’s asset base into our Vermilion forecasts and valuation based on the planned 15 June 2018 transaction closing date. We estimate the acquisition to be 9% accretive to cash flow per share in 2019 and 10% in 2020. Our valuation rises from C$48.2/share to C$/53.8/share as a result.