CPE Stock Drops as Paulson Green Lights Revised Carrizo Deal

CPE Stock

CPE stock is in the red on Monday after Callon Petroleum’s (NSYE:CPE) third-largest shareholder, Paulson & Co, announced it would not oppose the company’s takeover of smaller rival Carrizo Oil & Gas (NASDAQ:CRZO) based on the revised terms.

CPE Stock Sinks Despite Major Shareholder Approving Deal

Paulson & Co, which held 9.5% of CPE stock as of November 6, had been opposed to the Carrizo takeover on the previously stated terms, arguing that the 25% premium it was planning on paying was far too high and that the company should instead put itself on the market. However, last week, the companies agreed upon a revised deal, which will see Callon pay $723 million USD for Carrizo, instead of the previous figure of $1.2 billion USD. The matter will now go to a shareholder vote rescheduled for December 20.

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Billionaire investor John Paulson has also reduced his holding in CPE stock from 9.5% in light of the deal, which highlights the struggles in the shale mining industry. The new deal will provide Carrizo shareholders 1.75 Callon shares for each share held, down about 15% from the first bid. Callon Petroleum will also have to pay up to $10 million USD of Carrizo’s expenses if Callon shareholders reject the deal at the December vote. Shares in both firms are down around 9%, with crude oil prices coming under pressure today.

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“The combined structure represents the most logical go-forward course of action for each company, given current Eagle Ford free cash flow and future potential to monetize the asset, as well as the increased size in the Delaware [basin] allowing for a more meaningful shift to project development,” SunTrust analyst Robinson Humphrey wrote in a note. Both CRZO and CPE shares are down around 9%, with crude oil prices coming under pressure today.

Crucial Vote on December 20

While Paulson is no longer opposed to the deal, it is unknown if the new offer has changed the stance of proxy advisory firms Glass Lewis & Co and Institutional Shareholder Services, which had urged a “no” vote to the original Callon-Carrizo merger. Precedent for the deal certainly doesn’t bode well either after shares in US shale firm Parsley Energy Inc (NYSE:PE) fell 11% after it agreed to buy smaller peer Jagged Peak Energy Inc (NYSE:JAG) in an all-stock deal valued at $1.62 billion USD back in October. CPE stock is currently trading for $3.94 in New York.

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