One of the top shareholders in QEP Resources Inc. plans to vote against the shale producer’s pending acquisition by larger rival Diamondback Energy Inc. and strongly urged fellow shareholders to do the same.

New York-based investment firm Glazer Capital LLC, which ranks in the top five of QEP shareholders, detailed its rationale for rejecting the proposed deal in an open letter on March 9 calling the merger consideration offered by Diamondback “materially inadequate.”

“If QEP shareholders were to support the Diamondback acquisition, we believe that QEP shareholders would forfeit substantial value in return for grossly inadequate consideration,” the New York-based investment firm wrote in the letter. “We intend to vote AGAINST the Diamondback Acquisition at the special meeting of QEP stockholders next week on March 16, 2021 and we encourage other QEP shareholders to do likewise.”

Based in Denver, QEP Resources is an independent E&P company focused in the Midland sub-basin of the Permian Basin and the Bakken/Three Forks play in the Williston Basin.

Diamondback agreed late last year to acquire QEP in an all-stock transaction that, including the assumption of QEP’s net debt of $1.6 billion, was valued at approximately $2.2 billion. The same day of the QEP deal, Diamondback also announced the acquisition of a smaller, private E&P, Guidon Operating LLC.

The Guidon deal already closed but closing of the QEP transaction, expected in first-quarter or early second-quarter 2021, still requires the approval of QEP stockholders.

However, citing a recent surge in small-cap E&P company valuations, Glazer Capital argued the standalone valuation for QEP shares is now far in excess of the merger consideration. Consideration consisted of 0.05 shares of Diamondback common stock for each share of QEP common stock, representing an implied value to each QEP stockholder of $2.29 per share, a company release announcing the deal said.

Further, QEP’s financial adviser for the transaction, Evercore, would no longer be able to re-render its fairness opinion today based on current comparable company valuations.

“Utilizing the same peer group as Evercore and employing a virtually identical public company trading multiple methodology, we believe there is considerably more upside potential in QEP shares today as a standalone company than the value offered to QEP shareholders under the current terms of the Diamondback acquisition,” Glazer Capital wrote.

”It appears easily observable that current trading multiples of E&P companies similar to QEP are highly supportive of significant upside for QEP’s stock and they reinforce our contention that the current terms of the Diamondback acquisition are value destructive to QEP shareholders,” the firm added.

QEP Underperformance Graph
(PRNews foto/Glazer Capital LLC)

In conclusion, Glazer Capital said it believes the best means available for QEP shareholders to achieve ”full and fair value” for their QEP shares is to reject the Diamondback acquisition at the upcoming special meeting. The firm also called on ISS to rescind its recommendation of the proposed Diamondback acquisition.

Glazer Capital is a manager of investment funds and separate accounts that collectively beneficially own over 13.8 million shares, or approximately 5.7% of the outstanding shares, of QEP Resources, according to the firm’s release. This would make it the fifth-largest shareholder, according to a Reuters report citing data provider Refinitiv.

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