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Cabot Oil & Gas Corporation COG recently entered into a definitive agreement with Cimarex Energy Co. XEC to merge in an all-stock deal of equals.
Per the terms of the deal, which is unanimously approved by both companies' board members, Cimarex shareholders will receive 4.0146 Cabot common stock for each Cimarex common stock they hold. Post the completion of the transaction, Cabot stockholders will own 49.5% interest of the combined entity while the rest will be held by Cimarex stakeholders.
The Cabot-Cimarex merger will combine two leading industry operators, and world-class gas and oil facilities to form a diversified energy leader, thereby creating an opportunity for more free cash flow throughout the market cycle and higher returns for investors.
According to both companies, each currently with a Zacks Rank #3 (Hold), combining Cabot (a natural gas operator in the Appalachian Marcellus shale basin) and Cimarex, which primarily drills for oil in the Permian and Anadarko basins, will save approximately $100 million worth of annual costs. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite market upheavals, the combined company will be well positioned to provide greater capital returns to its shareholders. It also intends to declare and pay out a special dividend of 50 cents per share to all its common shareholders shortly after the deal closes.
The deal, which is the largest in the U.S. oil and gas space since Chevron’s CVX acquisition of Noble Energy last year, is scheduled to be completed in the fourth quarter of this year, contingent on pending regulatory approvals, Cabot and Cimarex common shareholder nods and the fulfillment of other customary closing conditions.
Following the merger, Dan O. Dinges will serve as the executive chair of the newly consolidated company's board of directors while Thomas E. Jorden will helm the same as its CEO and grace as one of its board members. While the merged entity will operate under a new name, it intends to retain its Houston headquarters and the regional operations.
Recent Frenzy of U.S. Energy M&A Deals
Notably, oil and gas mergers and acquisitions saw a good start this year as it could be a way out for many facing the economic doldrums due to the coronavirus fallout. Recently, upstream player Bonanza Creek Energy reached a definite agreement with Extraction Oil & Gas to merge in an all-stock deal while natural gas producer EQT Corporation EQT announced the acquisition of Alta Resources.
Both Companies’ Shares Plunge
Following the news of the Cabot-Cimarex deal, shares of the former lost 6.8% yesterday while the latter’s stock was down more than 7% for the day. Per analysts tracking this transaction, the sell-off was prompted by increasing diversification as Cabot is mostly a natural gas explorer in the Appalachian’s Marcellus Shale while Cimarex is focused on oil drilling in the Marcellus shale basin in Texas and Oklahoma.
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