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Why the market reacted positively to the acquisition

Kshitija Bhandaru

Overview: A guide to the Whiting-Kodiak transaction (Part 8 of 9)

(Continued from Part 7)

Market reacted positively

Following the announcement, both companies’ stocks traded higher on July 14. Kodiak (KOG) stock stood at $14.91 at market close, compared to $14.23 per share on the last trading day before the announcement was made—an increase of 4.7 %.

Whiting (WLL) stock jumped to ~7.7 % to close at $84.58 per share compared to the previous market close of $78.54 per share—an unusual and rare event for an acquirer. This means that the market read this as a good deal.

Implications for KOG and WLL shareholders

Although KOG shareholders aren’t receiving a very high premium, the positives that can be achieved from the deal are:

Whiting, being a larger company, can help achieve lower well costs for KOG’s operations.

  • Well costs for KOG have been on the higher side
  • KOG, being a smaller company, may have lower negotiation power with service companies

Prior to the acquisition, KOG was carrying a significant amount of debt—$2.2 billion.

  • High debt levels and high well costs are challenges that many Bakken producers are facing
  • WLL will be assuming this debt under a larger umbrella of operations, and potentially a stronger financial foundation

Also, a major positive for KOG shareholders will be the receipt shares in the combined company, which will allow them to reap the benefits of positive synergies that this deal can create. WLL shareholders also stand to gain from potentially higher valued larger future production from what’s already established as a prolific play—the Bakken.

Key stocks and exchange-traded funds (or ETFs)

Both WLL and KOG are part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the Energy Select Sector SPDR ETF (XLE), and the iShares U.S. Energy ETF (IYE).

The following section discusses final conclusions about the WLL-KOG deal and how both the companies stand to benefit.



Continue to Part 9

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