Tropic Goes to the Well

Tropic Networks Inc. is looking to merge its way into the oil business, Light Reading has learned.

That's right, Texas Tea. According to a rather large, 497-page PDF prospectus filed with the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), Tropic on Dec. 22 will present shareholders with a proposal to merge with Canadian energy companies Chamaelo Exploration Ltd. and Tournament Energy Ltd. The document includes letters to Tropic, Chamaelo, and Tournament shareholders.

Tropic is looking to acquire all outstanding shares of Chamaelo and Tournament, essentially functioning as the acquirer, according to the shareholder letters. The letter says that the deal will consist of a share exchange and a cash component. The cash portion of the deal would require $87.75 million Canadian (US$76.22 million) in additional funding, which Tropic has apparently raised in a private placement, according to a Dec. 7 Chamaelo press release.

"Tropic, which will carry on the business as 'Chamaelo Exploration,' will, through its subsidiaries, own all of Chamaelo's oil and natural gas assets and undeveloped lands and a majority of Tournament's oil and natural gas assets and undeveloped lands," says a letter written to Tropic shareholders as printed in the PDF.

The resulting merged company would focus on the oil and gas industry, with expected production exceeding 5,000 BOE [barrel of oil equivalent] per day and an undeveloped land base of approximately 116,800 net acres. "Over 60 potential drilling locations have been identified on the lands to be held by the combined entity," says the shareholder letter.

The merger would create a new subsidiary of Tropic, referred to in the documents as "Tropic NewCo." It's not clear what the former Tropic Networks would do with its optical networking assets.

Tropic had not returned calls for comment at press time. As of today, its Website continues to describe it as an optical networking company.

Chamaelo, based in Alberta, Canada, announced merger plans on Oct. 25 in a press release that mentioned Tournament and "a private technology company" referred to only as "TechCo." The new entity would operate as "Chamaelo Exploration" and would be run by Chamaelo's current management team, the Chamaelo press release said.

Tournament is another Alberta-based energy company with Alberta oil and gas assets worth roughly $190 million, according to Chamaelo.

The merger will be presented to Chamaelo and Tournament shareholders after the Tropic shareholders have had their chance to approve it.

The news comes a month after Tropic named former JP Morgan Partners banker David Orr, as its new chairman, ostensibly to have Tropic look at all its options. (See Tropic Names Chairman .) "Effective immediately, Mr. Orr will work with the Tropic Networks Board of Directors and senior management team as they expand their customer base and drive value through both current and new strategic alliances," said a November press release issued by Tropic.

"Mr. Orr brings direct experience in scaling growth companies, specifically in the area of optical networking, making him an ideal candidate for this role," said the release.

As recently as May 2005, Tropic was out raising substantial amounts of money, touting its prospects in the ROADM Market. (See Tropic Taps Investors Again.)Jed Clampett had no comment on the matter.

— R. Scott Raynovich, US Editor, Light Reading