Source: Houston Chronicle


Callon makes case for Carrizo merger amid shareholder opposition - oil and gas 360

Source: Houston Chronicle

Houston oil and gas producer Callon Petroleum is going on the offensive to sell its shareholders on its proposed acquisition of Carrizo Oil & Gas after one of Callon’s top shareholders came out against the deal.

While Callon would acquire for $1.2 billion Carrizo, the sale is pitched as a merger of near-equals of Houston-based producers in an all-stock deal. But New York hedge fund manager Paulson & Co., which holds nearly 10 percent of Callon’s shares, is contending it’s a bad deal.

“The strategic and financial benefits of Callon’s combination with Carrizo are compelling,” said Callon Chief Executive Joe Gatto.

The deal would combine Callon, which focuses exclusively on the booming Permian Basin, with Carrizo’s position in both the Permian and South Texas’ Eagle Ford shale.

Gatto argued that scale is needed to make Callon more competitive and that the more mature Eagle Ford production would provide steady cash flow to help fund Permian growth. His presentation touts the expanded company as “Texas strong” with more diversification in the state.

Paulson points out that Wall Street has reacted negatively to the deal, sending Callon’s stock plunging and that Callon would lose its niche as a pure-play Permian operator. Wall Street has been especially punitive toward oil and gas acquisitions of late, with investors contending that companies should be focused on improving internal efficiencies rather than expanding through deals.

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.

The combined Callon would hold about 200,000 net acres in the Eagle Ford and Permian, including more than 90,000 net acres in the Delaware Basin.

The company would have 11 board members, including Callon’s eight existing board members and three appointed from Carrizo.

Callon and Carrizo each employ more than 200 people, so some layoffs would be expected where there is duplication.


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