The pending merger between Houston oil producers Callon Petroleum and Carrizo Oil & Gas could be on the brink of falling apart with ongoing investor opposition ahead of the Nov. 14 shareholder vote to approve the deal.
Callon plans to acquire Carrizo for $1.2 billion in an all-stock deal that represents a merger-of-near-equals as the two firms seek to combine to add more scale in Texas shale plays and better compete with the larger players. But shareholder opposition led by New York hedge fund manager Paulson & Co. threatens to kill the deal.
Callon sent out a new shareholder presentation on Tuesday to tout the benefits of the deal, while Paulson & Co. quickly reiterated its arguments that the deal would destroy shareholder value.
The deal would combine Callon, which focuses exclusively on the still-booming Permian Basin, with Carrizo’s position in both the Permian and South Texas’ Eagle Ford shale. The combined Callon would have about 200,000 net acres in the Permian and Eagle Ford, including more than 90,000 acres in the Permian’s more active western lobe, called the Delaware Basin.
Fearing overspending and growth for the sake of growth, Wall Street has punished oil producers for mergers in the last year or so, and Callon’s stock value has fallen since the Carrizo deal was announced. Paulson & Co., which owns about 10 percent of the Callon shares, is arguing the stock would suffer even more if the deal is consummated.
Paulson & Co. noted that Callon’s debt load would “explode” from $1.2 billion to $3.5 billion. and the firm also complained about large bonuses or “golden parachute” pay-outs to the leadership of both companies for making the deal.
The Callon leadership would better benefit shareholders by selling the company for a premium rather than pursuing additional growth, Paulson & Co. contended.
The deal offered a 25 percent premium on Carrizo’s stock price. Callon stockholders would own a 54 percent stake in the merged company and Carrizo investors would get 46 percent.
Callon just moved its headquarters from Mississippi to Houston at the beginning of this year, and the combined company will remain in Houston.
In the last couple of years, Carrizo has focused on growing in the Permian while selling its other assets in Colorado and the gassy Appalachian Basin nearer to the East Coast.
