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Paulson Agrees to Callon's Revised Carrizo Merger Terms

Zacks Equity Research

Callon Petroleum Company CPE recently received green signal from key shareholder Paulson & Co. — a private investment management firm — for its Carrizo Oil & Gas, Inc. CRZO acquisition plan. Following the revised merger terms announced on Nov 14, Paulson — which strongly opposed the deal from the start — has decided to vote its shares in favour of the deal.

Price Movement

After the news that Paulson has given green signal to the proposed merger deal hit the market yesterday morning, Callon and Carrizo stocks declined 9.8% and 9%, respectively. Moreover, Callon and Carrizo declined 12.1% and 22.2%, respectively, compared with the industry’s fall of 5.9% in the last three months.

New Terms

The revised deal reduced the stock exchange ratio from 2.05 to 1.75. This translates to a premium to be paid of 6.7%, which is significantly lower than 25% decided previously. Moreover, the deal revision removes the golden parachute entitlement to Callon’s management. Shareholders of the company will now own 58% of the combined entity, up from 54% agreed earlier.

The combined company is expected to have around 200,000 net acres in the Permian Basin and Eagle Ford shale. The latest deal is expected to generate more than $100 million of incremental free cash flow in 2020. This information can be intriguing for investors as Callon’s free cash flow has been negative since 2011.

However, the company can lose its pure-play Permian status on acquiring Carrizo’s Eagle Ford shale play properties. Paulson is bothered about the change in status quo as it will reduce the company’s attractiveness. Respecting other investors’ viewpoints on the matter, Paulson — which earlier owned 9.5% of Callon’s outstanding shares — has lowered its positions in the stock.

Zacks Rank & Stocks to Consider

Currently, Callon has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are CNX Resources Corporation CNX and Contango Oil & Gas Company MCF. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CNX Resources’ 2019 earnings per share have witnessed three upward movements and no downward revision in the past 30 days.

Contango Oil & Gas’ bottom line for the current year is expected to rise around 87% year over year.

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CNX Resources Corporation. (CNX) : Free Stock Analysis Report
 
Contango Oil & Gas Company (MCF) : Free Stock Analysis Report
 
Carrizo Oil & Gas, Inc. (CRZO) : Free Stock Analysis Report
 
Callon Petroleum Company (CPE) : Free Stock Analysis Report
 
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