Callon Petroleum Co. CPE -15.00% has said it would buy Carrizo Oil & Gas Inc. CRZO +2.76% for $1.2 billion in stock as the oil company seeks to build scale in key production areas in Texas.
Carrizo shareholders will receive 2.05 Callon shares for each share of Carrizo common stock, valuing that stock at $13.12 a share. Carrizo had 92.5 million shares outstanding at the end of the first quarter. Carrizo shares closed at $10.50 on Friday.
Houston-based Callon will also assume the $1.7 billion in long-term debt Carrizo listed on its balance sheet at the end of the first quarter. The company also has $250 million in preferred shares. All in, the companies value the transaction at $3.2 billion.
The deal will give Callon extensive holdings in Texas, including in the Permian Basin and Eagle Ford shale production areas.
Callon said Monday it believes it will find $850 million in savings through cost cuts and due to the combined company’s larger scale. Integrating development schedule and lowering oil production downtime, among other changes, will help achieve those results, the companies said.
Shares of Callon fell 13% in premarket trading Monday.
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My comment: well, this seems to be a slap in the face of CRZO shareholders as clearly CRZO is worth a lot more than $11/share. With the severe drop in CPE share price today -15% on the news, down to $5.35 this buyout puts CRZO sub $11/share. hardly any premium from fridays close of 10.50. CRZO currently $11.75 as I type and CPE at $5.40. perhaps CPE is the thing to buy as long term CPE got some excellent assets.
Comments and replys welcome.
d4v
Callon Petroleum buyout merges with CRZO
Re: Callon Petroleum buyout merges with CRZO
CRZO shareholders should not be disappointed. IMO CPE + CRZO is a 1+1 = 2.2 deal because financial savings from the combination will benefit all stakeholders. CRZO shareholders will just have more shares in a much larger company. Just the G&A savings will be several $million per year.
Post-merger, CPE will have over 100,000 Boepd of production and lots of running room. CPE should easily be FCF positive and continue to build production by at least 10% year over year.
The much strong asset base should improve the company's credit rating and lower their cost of capital.
The market ALWAYS assumes that the Buyer paid too much and the stock trades lower on the news. This is a large enough deal that a lot of Wall Street firms will need to issue an opinion on CPE. I think when they add the two companies together they will like what they see.
BTW these are two rock solid management teams. CRZO management is an older group and I do expect several of them to retire. Most of the CRZO employees should be retained.
Post-merger, CPE will have over 100,000 Boepd of production and lots of running room. CPE should easily be FCF positive and continue to build production by at least 10% year over year.
The much strong asset base should improve the company's credit rating and lower their cost of capital.
The market ALWAYS assumes that the Buyer paid too much and the stock trades lower on the news. This is a large enough deal that a lot of Wall Street firms will need to issue an opinion on CPE. I think when they add the two companies together they will like what they see.
BTW these are two rock solid management teams. CRZO management is an older group and I do expect several of them to retire. Most of the CRZO employees should be retained.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group