"Concho Resources (NYSE:CXO) agrees to acquire RSP Permian (NYSE:RSPP) in an all-stock deal valued at ~$9.5B including debt.
RSP shareholders will get 0.320 of CXO shares for each stock held, or $50.24/share, a ~29% premium to RSP's Tuesday closing price; upon completion, CXO shareholders will own 74.5% of the company and RSP shareholders of RSP will own the rest."
Dan, your profile of RSPP had a fair value price of $52.00. It was trading at $38.92 yesterday. Great call. I think this is good for valuation of other companies.
Dan's fair value of Concho of $184 compared to its price yesterday of $157 is 17% undervalued. Comparing the fair value of RSPP of $52 with its price yesterday of $38.92 is a 33% undervaluation. So, using higher relative valued shares as currency to buy significantly undervalued company. Concho will see a hit to its share price but may be a good time to start a position there.
RSP Permian sold to Concho
Re: RSP Permian sold to Concho
This is great news and a good example of how I value companies.
My "Fair Value Estimates", which are updated each week on the main Sweet 16 spreadsheet, are not the same as a price target. Fair Value Estimates are what I believe the company will sell for in an arms length negotiated deal.
In my opinion, RSPP shareholders are getting a better deal than what the headlines will say today because they are getting shares of CXO, which are also undervalued.
Again, this is great news for all of our portfolio companies because it shines a spotlight on how undervalued these stocks have become. This many also start a chain reaction and stimulate more M&A activity. Let's hope so.
My "Fair Value Estimates", which are updated each week on the main Sweet 16 spreadsheet, are not the same as a price target. Fair Value Estimates are what I believe the company will sell for in an arms length negotiated deal.
In my opinion, RSPP shareholders are getting a better deal than what the headlines will say today because they are getting shares of CXO, which are also undervalued.
Again, this is great news for all of our portfolio companies because it shines a spotlight on how undervalued these stocks have become. This many also start a chain reaction and stimulate more M&A activity. Let's hope so.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
Comments below were just sent to me by John White at Roth Capital:
RSPP: CXO Acquiring for $50.24 Per Share; Catalyst for Permian Consolidation?
Concho Resources Inc. (CXO-NC) and RSPP today announced they have entered into a definitive agreement under which CXO will acquire RSPP in an all-stock transaction valued at approximately $9.5 billion, inclusive of RSP’s net debt. The consideration to RSPP shareholders equals $50.24 per share based on the closing price of CXO stock on 3/27/2018, which is essentially equal to our target price of $50.50.
This transaction could potentially be a catalyst for additional consolidation in the Permian Basin. There are a large number of small and mid-cap operators active in the basin, including: AREX-NC, CPE-Buy, FANG-Buy, ESTE-Buy, HK-Buy, LPI-NC, MTDR-NC, PE-NC, REI-Buy.
Highlights:
Large, highly-complementary acreage expands CXO’s strategic portfolio in the Permian Basin to approximately 640,000 net acres
Combined company to run the largest drilling program in the Permian Basin with 27 rigs
Drives significant operational synergies through development optimization, shared infrastructure and capital efficiencies, with a present value of more than $2 billion
Expect to realize over $60 million in annual corporate level savings
Transaction Details:
Shareholders of RSPP will receive 0.320 shares of CXO common stock in exchange for each share of RSPP common stock, representing consideration to each RSPP shareholder of $50.24 per share based on the closing price of CXO common stock on 3/27/2018. The consideration represents an approximately 29% premium to RSPP’s closing price of $38.92 on 3/27/2018. Upon closing of the transaction, CXO shareholders will own approximately 74.5% of the combined company, and RSPP shareholders will own approximately 25.5%.
The transaction, which is expected to be completed in 3Q 2018, and is subject to the approval of both CXO and RSPP shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions.
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MY TAKE: Size matters in this business and this deal may start an "Arms Race". Let's hope so.
RSPP: CXO Acquiring for $50.24 Per Share; Catalyst for Permian Consolidation?
Concho Resources Inc. (CXO-NC) and RSPP today announced they have entered into a definitive agreement under which CXO will acquire RSPP in an all-stock transaction valued at approximately $9.5 billion, inclusive of RSP’s net debt. The consideration to RSPP shareholders equals $50.24 per share based on the closing price of CXO stock on 3/27/2018, which is essentially equal to our target price of $50.50.
This transaction could potentially be a catalyst for additional consolidation in the Permian Basin. There are a large number of small and mid-cap operators active in the basin, including: AREX-NC, CPE-Buy, FANG-Buy, ESTE-Buy, HK-Buy, LPI-NC, MTDR-NC, PE-NC, REI-Buy.
Highlights:
Large, highly-complementary acreage expands CXO’s strategic portfolio in the Permian Basin to approximately 640,000 net acres
Combined company to run the largest drilling program in the Permian Basin with 27 rigs
Drives significant operational synergies through development optimization, shared infrastructure and capital efficiencies, with a present value of more than $2 billion
Expect to realize over $60 million in annual corporate level savings
Transaction Details:
Shareholders of RSPP will receive 0.320 shares of CXO common stock in exchange for each share of RSPP common stock, representing consideration to each RSPP shareholder of $50.24 per share based on the closing price of CXO common stock on 3/27/2018. The consideration represents an approximately 29% premium to RSPP’s closing price of $38.92 on 3/27/2018. Upon closing of the transaction, CXO shareholders will own approximately 74.5% of the combined company, and RSPP shareholders will own approximately 25.5%.
The transaction, which is expected to be completed in 3Q 2018, and is subject to the approval of both CXO and RSPP shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions.
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MY TAKE: Size matters in this business and this deal may start an "Arms Race". Let's hope so.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
Dr. Joe Dancy's comments: https://www.linkedin.com/feed/update/ur ... 5043223552
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
Would that price be less if the share price of CXO goes down or is it based on yesterday's close? I invested in RSPP after reading your research and am trying to figure out if I should continue to hold it.
Re: RSP Permian sold to Concho
Stock of the buyer goes down about 99% of the time deals like this are announced. There are three primary reasons.
1. Some analysts start screaming that they paid too much. I don't think so.
2. Dilution: Additional shares issued by CXO increases the total share count, so EPS and CFPS tend to go down a bit initially, but should rebound as the combined company should add to earnings and operating cash flow.
3. Mergers of this size do cause some "transition issues". This should not be much of a problem for CXO since they have extensive operations in the same area as RSPP. Plus, most of the RSPP employees will stay on at least through year-end. (My department at Hess handled land records and accounting issues, so I know how big of a job this is for the "back office" staff. Pray for them.)
If you just keep your RSPP shares there will be no taxable gain to pay taxes on. Your tax basis in the RSPP shares will just become your basis in the CXO shares you get when the transaction closes in Q3.
In the short run, I would expect the RSPP share price to move higher than it is today because it takes time for the CXO share price to settle down. IMO this is a very good deal for both companies.
1. Some analysts start screaming that they paid too much. I don't think so.
2. Dilution: Additional shares issued by CXO increases the total share count, so EPS and CFPS tend to go down a bit initially, but should rebound as the combined company should add to earnings and operating cash flow.
3. Mergers of this size do cause some "transition issues". This should not be much of a problem for CXO since they have extensive operations in the same area as RSPP. Plus, most of the RSPP employees will stay on at least through year-end. (My department at Hess handled land records and accounting issues, so I know how big of a job this is for the "back office" staff. Pray for them.)
If you just keep your RSPP shares there will be no taxable gain to pay taxes on. Your tax basis in the RSPP shares will just become your basis in the CXO shares you get when the transaction closes in Q3.
In the short run, I would expect the RSPP share price to move higher than it is today because it takes time for the CXO share price to settle down. IMO this is a very good deal for both companies.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
Is the sale based on CXO's closing price yesterday because that can make a difference in what you will receive? Thank you for your reply.
Re: RSP Permian sold to Concho
Shareholders of RSPP will receive 0.320 shares of CXO common stock in exchange for each share of RSPP common stock. This won't change just because the market price of CXO or RSPP reacts to the announced deal.
My guess is that the deal is firm at this point, but anything can change until it is closed.
My guess is that the deal is firm at this point, but anything can change until it is closed.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
Thank you. Your research paid off for this one. Now I need a buy out offer for REI.
Re: RSP Permian sold to Concho
Ring looks great. As I posted here recently, in my discussion with John White at Roth Capital after our last luncheon, John listed RSPP, REI and GDP as his top three picks. John follows a lot of our model portfolio companies and he shares his reports and insights with me on a regular basis.
I doubt that Ring Energy (REI) is a near-term takeover target because the large-caps are not interested in the CBP. However, I do know that Ring's goal is to sell the entire company "when the price is right".
Check my post under "Picks and Tips" about this topic.
I doubt that Ring Energy (REI) is a near-term takeover target because the large-caps are not interested in the CBP. However, I do know that Ring's goal is to sell the entire company "when the price is right".
Check my post under "Picks and Tips" about this topic.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
should we sell RSPP now and buy back CXO after the SELL ??
Re: RSP Permian sold to Concho
You don't need to sell RSPP to get CXO. You will get the CXO shares when the deal closes and you will not have to pay taxes on the gain.
If you sell the RSPP shares now, you must "realize the gain" for income tax purposes.
If you sell the RSPP shares now, you must "realize the gain" for income tax purposes.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RSP Permian sold to Concho
its In a tax sheltered account. But I thought that CXO would drop in value after the dilution of stock to buy RSPP.
Re: RSP Permian sold to Concho
Keep in mind that CXO is getting some darn good assets at a bargain price to offset the dilution. RSPP should settle in and trade at 0.32 X CXO now.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group