[Editor's note: This story was updated at 12:06 p.m. CDT Nov. 14.]
In response to shareholder opposition, Callon Petroleum Co. and Carrizo Oil & Gas Inc. on Nov. 14 they unsweetened the terms of the merger between the two Houston-based independents.
Callon's initial proposal offered Carrizo a 25% premium. Under new merger terms, the premium slips into the single digits and the overall transaction value would fall by about half a billion dollars.
Despite clamoring for consolidation for the past year, investors have largely punished stocks of merging companies, with few exceptions. For example, shares of Callon have fallen roughly 30% since the transaction with Carrizo was first announced in July.
UPDATE:
Callon Wins Over Carrizo Merger’s Biggest Opponent
The lion’s share of the negative reaction was due to the 25% premium Callon agreed to pay for Carrizo, which Callon shareholder Paulson & Co. called “unjustifiable” in a letter to Callon’s board in early September. Other complaints by Paulson included the merger taking Callon, previously a pure-play Permian operator, into the Eagle Ford.
“[Carrizo’s] inferior Eagle Ford assets will permanently reduce the attractiveness of Callon to potential acquirers,” the firm wrote in the September letter. Paulson holds about a 9.5% stake in Callon, making it the company’s third largest shareholder, according to a report by Reuters.
Callon on Nov. 14 made efforts to address these concerns with amended terms, which included reducing the equity exchange ratio for its acquisition of Carrizo to 1.75 from 2.05. The new terms will now reduce the deal’s premium to 6.7% from 25%, according to Phillips Johnston, an analyst with Capital One Securities Inc.
RELATED:
“M&A Pressure: Consolidation On The Climb” featured in the November 2019 issue of Oil and Gas Investor
Johnston also estimates the amended terms lower the total transaction value to $2.7 billion from the original $3.2 billion deal value. Callon shareholders will now also own 58% of the combined company, up from the original 54%.
“We think the new terms will eliminate most of the opposition to the deal by select CPE shareholders, so we believe there is high likelihood the deal receives approval in its current form by both sets of shareholders,” he said in a research note on Nov. 14.
Shareholders will still need to approve the merger at a special meeting rescheduled for Dec. 13. The meeting had originally been scheduled for Nov. 14. The companies also still expect to close the transaction by year-end.
Recommended Reading
Permian M&A: Oxy Shops Delaware Assets, Family Oil Cos. Stand Out
2024-05-10 - As operators scour the Permian Basin for M&A opportunities, they’re keeping an eye on a tepid divestiture market. Family-owned oil companies also stand out among the pack of private inventory holders remaining in the Permian, according to Enverus Intelligence Research.
ConocoPhillips CEO Ryan Lance: Upstream M&A Wave ‘Not Done’ Yet
2024-03-19 - Dealmaking in the upstream oil and gas industry totaled $234 billion in 2023. The trend shows no signs of slowing, ConocoPhillips CEO Ryan Lance said at the CERAWeek by S&P Global conference.
Minerals Market Growing But Needs More Scale, Consolidation
2024-05-15 - The market value of public minerals and royalties companies has doubled since 2019—but the sector needs to grow even larger to attract generalist investors into the fray, experts say.
ONEOK CEO: ‘Huge Competitive Advantage’ to Upping Permian NGL Capacity
2024-03-27 - ONEOK is getting deeper into refined products and adding new crude pipelines through an $18.8 billion acquisition of Magellan Midstream. But the Tulsa company aims to capitalize on NGL output growth with expansion projects in the Permian and Rockies.
EIA: E&P Dealmaking Activity Soars to $234 Billion in ‘23
2024-03-19 - Oil and gas E&Ps spent a collective $234 billion on corporate M&A and asset acquisitions in 2023, the most in more than a decade, the U.S. Energy Information Administration reported.