CPE + CRZO Merger Update - Oct 11

[dan_s]

There is a 95% the merger will close before year-end. I have posted a Pro Forma forecast/valuation model on EPG website under the Sweet 16 tab. Just click on the Callon logo.
----------------------------------------------
Callon Petroleum Co. (NYSE: CPE), which just moved its headquarters to the Bayou City from Mississippi this year, has set the date for shareholders to vote on its acquisition of Houston-based Carrizo Oil & Gas Inc. (Nasdaq: CRZO).

The all-stock deal valued at $3.2 billion, including debt, when it was announced in July.

Callon's special meeting of shareholders will be held Nov. 14 at 9 a.m. Central Time at Hotel ZaZa Memorial City. All shareholders of record as of close of business Oct. 7 are eligible to vote.

The deal is expected to close in the fourth quarter. However, it's faced opposition from investor Paulson & Co. Inc., which owns about 9.5 percent of Callon shares. In a Sept. 9 letter to Callon's board of directors, Paulson noted a 36 percent decrease in Callon's stock price since the deal was announced and said the company was paying too high a premium for the assets that Carrizo brings to the combined company, among other reasons for its opposition.

"We remain confident in the strategic and financial benefits of our combination with Carrizo, which will create a leading oil and gas company with scaled development operations focused on the Permian Basin in a transaction that is accretive on all per-share metrics," Callon said in a press release responding to Paulson's letter. "The pro forma company will allocate more capital to the Permian Basin than the combined Callon and Carrizo standalone development plans, supported by strong free cash flow from the Eagle Ford Shale."

Callon provided a more in-depth breakdown of its arguments in favor of the deal in a Sept. 26 press release.

Also on Sept. 26, the companies announced that they had finalized some plans involving their office locations. When the deal was announced in July, Callon noted it would still move its local office to BriarLake Plaza along Beltway 8 in west Houston on July 26 as previously planned. However, the companies were still considering other possible real estate changes at the time.

Now, the companies have decided to consolidate operations into Callon's new One Briarlake headquarters, which will mean leaving Carrizo's current headquarters in One Allen Center at 500 Dallas St. However, the entire office consolidation is not expected to occur until mid-2020, as the combined company will still have to build out the 10th floor at One Briarlake to accommodate the additional employees, according to a Sept. 26 letter to employees. The company will occupy three floors at One Briarlake, which will include more than 20 conference rooms and multiple informal collaboration spaces.

"In making this decision we gave particular consideration to employee needs and interests, including commute times of current Callon and Carrizo employees, which favored the Briarlake location," Callon President and CEO Joe Gatto said in the Sept. 26 letter. "We also considered cost, along with the attributes of both Carrizo’s downtown headquarters and Callon’s Briarlake facility, including collaboration spaces and employee amenities. … We recognize that the move may reduce commuting options for some of you. We’re evaluating alternatives to help make your commute better, including van pools."

Also when the deal was announced, the companies planned to expand Callon's eight-person board of directors to 11 with the addition of three members appointed from Carrizo's board. Now, following additional members have been selected:

J.P. Morgan LLC is serving as exclusive financial adviser to Callon, and Kirkland & Ellis LLP is serving as Callon's legal adviser. JPMorgan Chase Bank N.A. and Bank of America Merrill Lynch provided underwritten financing to Callon to support the transaction. RBC Capital Markets LLC and Lazard are serving as financial advisers to Carrizo, and Baker Botts LLP is serving as Carrizo's legal adviser.