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Denbury & Penn Virginia Mutually Abort $1.7B Merger Plan

Zacks Equity Research

Denbury Resources Inc. DNR and Penn Virginia Corporation’s PVAC $1.7-billion acquisition deal has been called off via mutual agreement. For each Penn Virginia stock, Denbury was supposed to pay $25.86 in cash and 12.4 shares of its common stock. There will be no termination fee involved in the process, per the agreement.

Denbury made the merger agreement as Penn Virginia’s Eagle Ford assets were expected to have a low breakeven point, which could have complemented its portfolio. The acquisition could have brought in opportunities of short cycle development to the company’s medium cycle development assets. The combined entity was expected to have an enterprise value of $6 billion. Following the closure of the transaction, Denbury stockholders were expected to hold around 71% of the combined entity. However, opposition from shareholders of Penn Virginia, like Mangrove Partners, led to the termination.

Activist investment fund Mangrove Partners, a major shareholder of Penn Virginia, has been very vocal against the merger since the very beginning. Last year, it increased its active stake in Penn Virginia to 10.7% from 9.5% and called on the termination of the merger deal, which was expected to be closed in the first quarter of 2019.

The cash-and-stock merger deal was signed at the end of last October. Oil price plunged more than 30% during the October-December period from more than $76 per barrel level to $42. This hurt most of the explorers and producers across the globe. Moreover, the merger agreement, which assumed Penn Virginia’s debt-burden,was also not appreciated by Denbury’s investors. Eventually, the company declined 55.1% while Penn Virginia descended 19.4% compared with the industry’s fall of 13.9%. Notably, Denbury jumped 5.6% in pre-market trading, following the announcement of the merger-deal termination.

The company now plans to pursue other opportunities to expand business, per its strategic plan. Moreover, the company wants to keep its disciplined operating process intact, which is expected to help it generate $100 million of free cash flow this year.

Zacks Rank and Stocks to Consider

Currently, Denbury has a Zacks Rank #4 (Sell). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

Denver, CO-based Antero Resources Corporation AR is an exploration and production company. For 2019, its top line is expected to grow 10.9% year over year. The company currently holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

El Dorado, AR-based Murphy Oil Corporation MUR is an upstream energy company. Its bottom line for 2019 is expected to increase 3.2% year over year. The company delivered average positive earnings surprise of 6% in the trailing four quarters. The stock currently has a Zacks Rank #2 (Buy).

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