Board members are scrutinizing merger deals more than ever, says Tim Perry, director of Credit Suisse First Boston's global oil and gas group. They're looking at target-company board members individually, audit-committee members particularly, the company's audit firm's record, and the records of executives, especially chief financial officers, according to Perry. "There is a different level of scrutiny," he told IndigoPool.com customers at an acquisitions, divestitures and mergers program in Houston recently. "...Buyers want to do more due diligence before they enter a corporate transaction." Oil and gas mergers, acquisitions and divestitures have been few this year, compared with activity during the past six years. Perry's outlook for divestment activity is optimistic: Energy-trading and power-company sales of assets will continue. CSFB is advising NiSource Inc. currently on its planned divestment of more than 1 trillion cubic feet of gas in the Appalachian Basin. Private-equity investors are looking to cash out at current, higher commodity prices, so this may prompt some sales. The rationalization of noncore assets will continue. Companies are still needing advancement in scale. "The long-term reasons for consolidation are just too powerful for the industry," he said. A company's size, thus access to capital, is becoming increasingly important in international ventures and other expensive endeavors, such as in the deepwater Gulf of Mexico. Lower stock prices for E&P companies are slowing the pace of corporate transactions: sellers don't want to divest at their stock's current price. Also different this year is a lack of U.S. acquisitions of Canadian companies "Next year could be unusually active," he concludes. "CEOs are ready to go again...They're itchy." Meanwhile, the U.S. stock market appears to have bottomed, so higher stock prices are on the way, resulting in renewed consolidation.
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