CPE Stock Gains Ahead of Crucial November Merger Vote

CPE Stock

CPE stock is up nearly 7% today ahead of a crunch shareholder vote over Callon Petroleum’s (NYSE:CPE) proposed takeover of Carrizo Oil & Gas Inc (NYSE:CRZO).

CPE Stock Down 40% Since Deal was Announced

The takeover has been hotly disputed by a group of rebellious investors led by billionaire John Paulson, whose hedge fund Paulson & Co holds a 9.5% stake in Callon. Last month, Paulson wrote to Callon’s management arguing his case for why the company should abandon its planned $3.2 billion acquisition of Carrizo. Since the deal was first announced, CPE stock has dropped over 40%, which Paulson believes is a clear indication that the deal should be scrapped.

This week, Paulson kicked his dispute with Callon’s senior management up a notch after publically criticizing the executive level pay on both sides of the deal. “When added to advisory fees of $30 million, shareholders are being asked to entitle not one, but two, management teams and their bankers nearly $70 million for the massive destruction of shareholder value. […] shareholders will not only suffer steep losses, they will be paying fees to the parties responsible for causing the destruction in value,” said Paulson, but his statement has only moved CPE shares upwards.

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Risk of Deal Collapsing

Shareholders will vote on the deal on November 11, and the risk of it collapsing altogether is very real. As part of the deal, Callon has offered a 25% premium on CRZO stock based on its closing price on July 12, or approximately $13.12 per share. CRZO stock is currently worth $8.05 per share, while CPE stock is at $4.o5. Paulson argues that this 25% premium is “unjustifiable” and that Callon Petroleum will stand to lose its status as a Permian pure-play by acquiring holdings in the supposedly inferior Eagle Ford shale deposit.

Paulson owns just under 10% of CPE stock, while management holds just 0.5%. So not only does he have considerably greater voting power on the company’s executives, but his attacks against their rate of pay will not fall on deaf ears given his sizeable sway with other shareholders.

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