Current RRC Stock Info

“We believe the returns in Terryville rival the Southern Marcellus”: Jeff Ventura 
Range Resources (ticker: RRC), the legacy shale gas developer credited with discovering the Marcellus shale play, announced today that it will acquire all of the outstanding shares of Memorial Resource Development Corp. (ticker: MRD) in an all-stock transaction valued at $4.4 billion. The acquisition by Range of Memorial places the Terryville natural gas asset in northern Louisiana into Range's portfolio.

Range said the valuation includes the assumption of MR...

Analyst Commentary

ANALYST OPINION

From SunTrust Robinson Humphrey
Memorial Acquisition Boosts Near-term Credit Metrics, Liquidity and Inventory
Rating: Neutral
Market Cap (M): $6,995; Price: $42.01 as of 05/13/2016
Price Target: $45.00

Sector: Exploration & Production
Range Resources announced one of the first corporate deals we have seen since the 2014 massive decline in commodity prices with an acquisition of Memorial Resource Development (MRD, $13.45, Buy) for $4.4 billion or $15.75/sh all stock (17% premium). For Range, the deal significantly boosts liquidity and lowers leverage in the all equity deal while also increases pro-forma 2016 cash flow from ops to ~$750mm from ~$375mm prior. Importantly, Range’s leverage drops to 3.5x from 4.8x prior and pro-forma liquidity should be well over $2B vs. $1.7B prior. Other contributing factors of the deal were likely Memorial’s ~220,000 Gulf Coast acres and the new strong combined hedge book. Sad to see the Memorial guys ride off but we know they’ll be back… We expect Memorial to clearly outperform today, while RRC is likely under pressure.

Transaction Details:
· MRD shareholders will receive 0.375 share of RRC stock for each MRD common stock held.
· The transaction has the implied value of $15.75/share, representing a 17% premium based on the closing price of $13.45/sh on 5/13/2016.
· Upon closing, MRD shareholders will own ~31% of the outstanding shares of RRC.
· Closing to take place 2H16, subject to shareholder and certain regulatory approvals and customary closing conditions.
· Our Friday closing valuations of 10.8x ‘17EBITDA for MRD versus RRC at 15.4x

Pro-Forma RRC Metrics:
· 2016E Production goes from 520 to 670 Bcfe (up 29%)
· 2016E Cash Flow goes from $375 mm to $780 mm (up 108%)
· YE 2016E Debt to EBITDAX goes from 4.8x down to 3.5x (down 27%)
· YE 2016 E Debt to Cap is reduced from 50% down 37% (down 26%)
· Liquidity likely ~$2.0B from ~$1.7B prior

Rationale:
· Complementing assets: Range establishes Gulf Cost presence by adding 220,000 net surface acres in Terryville Field to its Marcellus-focused portfolio;
· Transportation Portfolio Optimization: Combined transportation portfolio offers larger flexibility and greater exposure to various off-take markets;
· Know-how exchange: RRC should be able to benefit from MRD’s drilling and targeting techniques;
· Corporate and other synergies.

From Wells Fargo
Summary. Range announced the acquisition of Memorial Resource Development for $4.4 Billion enterprise value or a 17% premium to Friday's close in an all-stock transaction. Big picture takeaway for us is the move from a regional bellwether to acquire non-Appalachia gas signals perhaps longer term growth outlook from Appalachia could potentially be constrained by midstream and takeaway. Transaction is expected to close in 2H16 subject to shareholder approval from both RRC and MRD.

Details. RRC announces merger with MRD in all stock transaction valued at $4.4B. Expected to be immediately cash flow accretive. Transaction expected to close in 2H16. MRD shareholders will receive 0.375 shares of RRC for each share of MRD. Transaction implies a $15.75 per share value for MRD shareholders and a 17% premium to Friday's closing price. RRC to assume net debt of $1.1B, however pro-forma 2016E leverage expected to decrease more than 1x. Combined company lead by RRC with MRD to nominate an independent director from MRD to a seat on the board.

Metrics. With 220,000 net acres in North Louisiana, translates to $10,500/acre at $5,000/Mcfe/d; on EBITDA, equates to 12.7x 2017, slightly above gassy peers in our coverage at 12.0x.

RRC Implications. Diversifying out of Appalachia, and getting solid, if early stage acreage with Henry Hub exposure, while de-levering, and increasing resource upside. Stock viewed as Appalachia pure play, and to the extent that deal highlights growth constraints, could be a source of investor concern.

MRD Implications. Given IPO less than two years ago, and largely untested acreage position, company is perhaps leaving some upside on the table given that still in early stages of development. That said, shares have outperformed since IPO (6/12/14) in a difficult commodity tape with transaction coming in 17% below IPO price of $19/share versus 12-month strip gas prices are down 34%, EPX down 59%. Given all-stock transaction, should allow shareholders to participate in upside under new, larger entity.


Range Resources Corp. (RRC-NYSE)--Market Perform (2) / V

Price as of 5/13/2016: $42.01
FY 16 EPS: $-0.49
FY 17 EPS: $-0.61
Shares Out.: 166.8 MM
Market Cap.: $7,007.27 MM

Memorial Resource Development Corp. (MRD-NASDAQ)--Outperform (1) / V

Price as of 5/13/2016: $13.45
FY 16 EPS: $0.47
FY 17 EPS: $0.12
Shares Out.: 203.9 MM
Market Cap.: $2,742.45 MM

Rating Basis Information:
RRC Thesis: Range Resources (RRC) has built an impressive inventory in the Marcellus Shale, one of the preeminent emerging shale plays in the lower 48. Combined with its portfolio elsewhere, this lowers reinvestment risk for shareholders, in our view. However, uncertainty involving future ethane volumes and potential basis risk remain a concern for investors.

MRD Thesis: Memorial Resource Development's operations are concentrated in the Terryville Complex in North Louisiana. The prolific nature of wells at Terryville should drive industry leading production and reserve growth, leading to superior capital efficiency and returns on equity.

From Capital One
RRC and MRD to Merge
RRC - $42.01, Equalweight, $39.00 Target, Velie; MRD - $13.45, Overweight, $19.00 Target, Velie
• Range Resources is set to acquire Memorial Resources in an all-stock transaction valuing Memorial at $15.75 (17% premium). MRD shareholders will receive 0.375 shares of RRC stock for each share of MRD common stock held. The implied equity value is ~$3.3B and RRC will also assume ~$1.1B of MRD's net debt, for a total transaction value of $4.4B.
• At first blush, the deal looks positive for RRC for a number of reasons: 1) the price looks attractive, 2) it looks significantly accretive to RRC's cash flow per share, 3) it will significantly compress RRC's EV/EBITDA multiples, 4) it will improve RRC's projected leverage ratios, and 5) it will diversify RRC's production base and improve margins.
• The take-out price is below Street/COS valuations of $19/$18 per share, respectively, so we believe the deal will be accretive to our $39 NAV est for RRC. On a standalone basis, we estimate RRC is trading at EV/EBITDA multiples of 19.3x/20.0x/12.9x based on ‘16/’17/’18. At the implied purchase price of $15.75, RRC is paying ~9.3x/12.0x/8.6x. We estimate the merger will drive RRC’s multiples down to 14.5x/17.1x/11.3x, which represents significant multiple compression, especially for this year and next. In terms of the impact to RRC’s balance sheet, the company’s standalone leverage ratios at YE16/YE17 are estimated to be 5.2x/5.7x. We project the merger will drive these ratios down to 3.9x/4.8x, a significant improvement.
• A presentation including merger highlights is available on the RRC website and a conference call will be held this morning at 8 AM Central.  


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