Gastar Preferred Stock

[dan_s]

I am not saying this is what is happening, BUT if I were advising a large-cap that wanted to make a run at taking over Gastar Exploration (GST) I would tell them to buy up as much of the company's preferred stock and public debt in the market as they could BEFORE making an offer.

Gastar's preferred stock and debt is trading at a deep discount to par.

If a well funded large-cap (CLR, DVN, NFX or XEC for example) wants to add to their STACK acreage, buying Gastar makes sense. However, if GST becomes a wholly owned subsidiary of a well-funded large-cap, the pfd stock and debt would move quickly back to par. The Buyer would need to pay dividends on the preferred and interest on the debt based on par values.

There are several very well funded private E&P companies operating in STACK. They are also likely buyers and could do a reverse merger into GST to go public or take it private. They would have to take out the preferred stock at par or keep paying the monthly dividends.

Someone is now gobbling up the Gastar preferred stock. There are only 4,045,000 shares of Series A preferred and 2,140,000 shares of Series B preferred outstanding. A lot of it is held by insiders, therefore the float is quite small on both issues. Since Gastar released Q4 results a lot of preferred stock has changed hands.

[dan_s]

Check out the trading volume on both of the Gastar preferred stocks today.

[gjames]

The heavy volume actually began during the week before earnings were released. Since that week (the week ending March 4th), roughly 1.8 million shares of the A and roughly 1 million shares of the B have changed hands, or about 45% of the outstanding shares of each.

[dan_s]

My SWAG (and it is nothing but a guess) is that someone (with a lot of money) already knows the bid that Gastar is going to get for their 26,000 acre STACK package that is on the market.

After reading the new Stifel report on NFX, I think they may have a team in the dataroom. NFX has drilled several very good STACK wells that just offset the Gastar leasehold. They are estimating EURs over 900,000 boe per well.

[ddlopata084]

There have been some big volume trades in the bonds within the past week...

7 trades of 1M or more

[dan_s]

Again, if you were a large-cap or a venture capital firm targeting a takeover of GST, the smartest thing you can do is buy up as much of the pfd stock and debt in the open market (at a deep discount to par) before you make an offer to the Gastar board for the common stock.

[bellwj]

Based on the activity levels of the past week, it appears the buying frenzy is over, at least for now.

[bigtex]

Dan
can you post the stifel report on GST

[dan_s]

I have not gotten it yet. If they sent one today, I will get it tomorrow morning.