CPE stock has been bolstered by shareholders of Callon Petroleum Co (NYSE:CPE) opposing to its proposed takeover of Carrizo Oil & Gas Inc (NYSE:CRZO).
CPE Stock Declining Since Deal was Announced
Billionaire investor John Paulson, whose hedge fund Paulson & Co holds a 9.5% stake in Callon, has written to the company’s management outlining why he believes the company should drop its plans for a proposed $3.2 billion acquisition of Carrizo. Paulson cites the 36% decline in CPE shares since the deal was announced, which has seen investors lose about $530 million USD, adding that Carrizo’s “inferior Eagle Ford (Texas Mineral Deposit) assets will permanently reduce the attractiveness of Callon to potential acquirers.”
Callon responded to Paulson in a statement by saying “we remain confident in the strategic and financial benefits of our combination with Carrizo, which will create a leading oil and gas company with scaled development operations focused on the Permian Basin (Western Texas Oil Field) in a transaction that is accretive on all per-share metrics.” While both CRZO and CPE stock has been struggling since the transaction was announced first announced in July, today’s rising value clearly shows that the market favors Paulson’s stance.
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Unjustifiable Premium
As part of the deal, Callon offered Carrizo approximately $13.12 per share based on its closing price on July 12, which represents a 25% premium. CRZO stock is currently worth $9.07 per share while CPE stock is at $4.77. Paulson argues that this 25% premium is “unjustifiable” and that Callon will stand to lose its status as a Permian pure-play by acquiring holdings in the supposedly inferior Eagle Ford shale deposit.
Paulson argues that Callon should go in a notably different direction, and sell itself. While his hedge fund holds just under a 10% stake in the company, management holds only 0.5% of the company and, as Paulson argues, are not meaningfully exposed to the declining value in the same way that he and other major investors are. His statement finishes with “if the board is truly interested in its shareholders, given the magnitude of the difference between the current stock price of Callon and its takeover value, it should pursue a sale of Callon.”
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