An interesting merger: SWN + MR on August 12
Posted: Wed Aug 12, 2020 9:15 am
Montage Resources (MR): Being Acquired by SWN in a No Premium Transaction
Note from John White at Roth Capital
SWN-NC has announced it has an agreement to acquire MR in an all stock, no premium transaction. We see SWN benefiting from 1) increased size, 2) operational benefits as the MR assets are a good fit with the SWN assets, 3) improved credit strength as it is an all stock deal to be followed by a secondary offering with the proceeds targeted to retire a portion of the MR 8.875% 2023 notes.
The motivation for MR is a bit unclear, in our view. MR has posted excellent operations execution during 2019 and thus far in 2020. Yes, MR is leveraged at 3.2x Debt/2020E EBITDA but the notes are not due until 2023. And recently the price of and outlook for U.S. natural gas has been improving. We note private equity firm EnCap Investments holds 39% of the MR shares and EnCap representatives are members of the nine person Board of Directors.
SWN will acquire MR in an all-stock transaction and based on the 3-day average closing share prices of the companies as of August 11, 2020 and under the terms of the agreement, MR shareholders will receive 1.8656 shares of SWN for each MR share. The transaction is expected to close in the fourth quarter of 2020, subject to customary closing conditions, including the approval of the MR shareholders.
Note from John White at Roth Capital
SWN-NC has announced it has an agreement to acquire MR in an all stock, no premium transaction. We see SWN benefiting from 1) increased size, 2) operational benefits as the MR assets are a good fit with the SWN assets, 3) improved credit strength as it is an all stock deal to be followed by a secondary offering with the proceeds targeted to retire a portion of the MR 8.875% 2023 notes.
The motivation for MR is a bit unclear, in our view. MR has posted excellent operations execution during 2019 and thus far in 2020. Yes, MR is leveraged at 3.2x Debt/2020E EBITDA but the notes are not due until 2023. And recently the price of and outlook for U.S. natural gas has been improving. We note private equity firm EnCap Investments holds 39% of the MR shares and EnCap representatives are members of the nine person Board of Directors.
SWN will acquire MR in an all-stock transaction and based on the 3-day average closing share prices of the companies as of August 11, 2020 and under the terms of the agreement, MR shareholders will receive 1.8656 shares of SWN for each MR share. The transaction is expected to close in the fourth quarter of 2020, subject to customary closing conditions, including the approval of the MR shareholders.