Tag Archives: M&A

Callon completes $750 million takeover of Carrizo

Callon Petroleum has completed its takeover of fellow Houston E&P operator, Carrizo Oil and Gas. The combined companies own 200,000 net acres in the Permian and Eagle Ford basins. As a result of the deal, Carrizo’s shares have been delisted.



The deal was originally announced in July 2019. At that time Callon had a market cap of $1.46 billion and Carrizo $1 billion. At deal close, the market caps were $1 billion and $750 million respectively.

As originally announced, the deal called for Carrizo shareholders to receive 2.05 shares of Callon stock for every share held. However Paulson & Co, a shareholder with a 10% stake, complained that Callon was paying a premium for Carrizo which was ‘unwarranted’. In October and November, ISS and Glass Lewis, two proxy advisory firms, recommended that Callon shareholders vote against the deal.

As a result, later in November, the terms were revised down to 1.75 shares of Callon stock. In addition, under the original terms, Callon management (the acquirer) were eligible for severance benefits as a result of the merger. The revised agreement removed these benefits.

Callon expects to save between $110 million and $170 million from combining the companies. Corporate overhead account for $35 million and $45 million, with the rest coming from operational synergies.

Carrizo had started talking to potential merger targets in the summer and fall of 2018. They did not hold their first meeting with Callon until January 2019.

All the executive officers of Carrizo stepped down as a result of the merger. The top five executives will receive severance payments of $26 million, of which $15 million is cash, the rest vested equity.

Greg Conaway, the Chief Accounting Officer of Carrizo (and not one of the top five executives) has been appointed to the same position at Callon.

SEC filing – Callon Carrizo merger

Another big oilfield services merger announced

Apergy Corporation, based in The Woodlands, has announced that it will merge with the upstream division (aka Nalco Champion) of Ecolab. The combined company will remain in The Woodlands.

Apergy was spun off from Dover Corporation in May 2018 and is primarily involved in Artificial Lift.  Ecolab, based in Minnesota, had originally announced in February 2019 that it intended to spin off Champion through an initial public offering. Champion primarily manufactures oilfield chemicals.



The company will be the second largest production-focused oilfield services company, behind Baker Hughes. Proforma revenues are $3.5 billion, 80% of which is derived from production.

The combined company will have an enterprise value of $7.4 billion, including just over $1 billion of debt. Apergy shareholders and existing Ecolab shareholders will own 38% and 62% of the combined company, respectively. Apergy is paying $3.9 billion in newly-issued shares and $492 million in cash to Ecolab.

The combined companies are assuming $75 million of cost savings. Including these savings, the transaction represents 9.5 times 2020 estimated EBITDA.

Apergy CEO Soma Somasundaram and Apergy CFO Jay Nutt will be CEO and CFO of the combined company. Deric Bryant, the EVP of Ecolab’s Upstream business will become COO.

The transaction is expected to close in the second quarter of 2020.

The announcement comes one day after Superior Energy agreed to spin off its US completions business and merge it with Forbes Energy.

Apergy – Investor Presentation

Oilfield Services company to spin off US completions into new public co

Photo by Joshua Doubek

Superior Energy Services has announced that it will merge its US completions business with Forbes Energy Services in an all-stock transaction. The combined entity will then be spun off into a publicly-traded company. It will have its headquarters in Houston.



Superior operates in four segments: Drilling Products and Services, Onshore Completions and Workover services, Production Services and Technical Solutions. It has its head office in downtown Houston. Like many oilfield service companies, it has been suffering from a high debt load. Net debt was about $1 billion at September.

Forbes is also a US completions business with its head office in Alice, Texas. The business filed for Chapter 11 in January 2017 and the bondholders exchanged their debt for common stock.

The Newco – no name has yet been announced – will have proforma revenues of $831 million, of which $210 million will come from Forbes. It will have adjusted EBITDA of $77 million. However Newco expects to achieve $23 million in synergies, of which $15 million will come from Corporate expenses.

Superior will own 52% of Newco and will also transfer $250 million of debt to it.  The CEO of Superior, David Dunlap will become the CEO of Newco. A CFO will be named later.

The remaining businesses of Superior will have revenues of $806 million. CFO Westy Ballard will become CEO while Chief Accounting Officer James Spexarth will become CFO.

The transaction is expected to close in the first quarter of 2020.

In further good news for Superior, its shares will begin trading again on the New York Stock Exchange on December 26. Back in September, I wrote about the shares being delisted for low stock price. The company has now completed a one-for-fifteen reverse stock split.

SEC filing – Superior spin-off

Houston MLP delisted after $6.5 billion takeover

Buckeye Partners has been delisted after its takeover by IFM Global Infrastructure Fund was completed. The $6.5 billion deal was originally announced in May 2019.



The original Buckeye Pipe Line Company was founded in 1886 as part of Standard Oil and became a publicly-owned independent company in 1911 after Standard Oil was broken up. In 1964, the company was acquired by a subsidiary of the Pennsylvania Railroad. In 1986, it was reorganized into a master limited partnership (MLP) and went public the same year.

Buckeye has 6,000 miles of pipeline and 115 liquid petroleum products terminals in the US and the Caribbean. In 2018, it had revenues of $4.1 billion. The company has its head office in Greenway Plaza.

Breakup of Standard Oil

Standard Oil was established by John D Rockefeller and Henry Flagler in 1870. In 1911 the Supreme Court ordered it to be broken up into 34 smaller companies. This included;

  • Standard Oil of New Jersey – later merged with Humble Oil to become Exxon
  • Standard Oil of New York – later merged with Vacuum to become Mobil
  • Standard Oil of California – renamed as Chevron.
  • The Ohio Oil Company – renamed as Marathon.

Background to the deal

In early 2018, the Board of the partnership decided to pursue strategic alternatives given that publicly-traded MLPs were out-of-fashion with investors. The company had discussions with various interested parties through May 2019.

IMF agreed to pay $41.50 per unit, all in cash. That represented a premium of 27.5% over the closing price of the partnership units prior to the announcement.

Equity awards vest

Equity options have vested on completion of the transaction and will be settled in cash. That means that CEO Clark Smith will receive $16.9 million and CFO Keith St. Clair $5.6 million. 7 other members of the executive management team will receive between $2.2 million and $4.8 million each.

If senior executives are also terminated as a result of the merger, they will also receive severance (annual salary plus target annual cash bonus). For CEO Smith that would be $2 million, for St. Clair that would be $1.2 million. The deal closed Friday without any terminations in the senior management group.

You can see the updated list of Houston-area public companies here

SEC filing – Buckeye takeover

Oilfield service companies complete merger

Two Houston-based oilfield companies, C&J Energy Services and Keane Group, have completed their merger. When the deal was originally announced in June 2019, the merger was valued at $1.5 billion. At completion, the companies were worth about $1 billion. The shareholders of each company will own 50% of the equity in the combined company.



The combined group will now be called Nextier Oilfield Solutions and have a stock ticker ‘NEX’. The board will consist of 12 directors, six designated by each party. The chairman is Patrick Murray (ex Chairman of C&J) and the CEO is Robert Drummond (ex CEO of Keane). The C&J CFO, Jan Kees van Gaalen becomes the combined group’s CFO. Greg Powell, the Keane CFO, becomes Chief Integration Officer.

For the six months ended June 30, 2019, C&J had revenues of $1 billion and adjusted EBITDA of $102 million. Keane’s figures were $849 million and $147 million respectively.

Synergies

The companies expect to achieve $100 million in cost synergies within 12 months. $45 million will come from sales, general and administrative expenses. $45 million will come from reduced material spend with $10 million of savings from consolidating real estate.

Mr Powell will serve as the Chief Integration Office for the earlier of (i) 18 months or (ii) the date at which the company achieves $100 million in annualized savings. He is eligible for a performance bonus of $2.6 million upon the achievement of specified performance criteria tied to the realization of synergies.

Background to the deal

In July 2017, Murray, the C&J chairman first met with Scott Wille, a director of Keane and employee of Cerberus to discuss the potential benefits of consolidation in the oilfield services sector. (Cerberus is the PE firm that bought Keane in 2011 and took it public in January 2017).

In the middle of 2018, Keane had discussions with another unnamed competitor about a business combination. When that deal fell apart, discussions with C&J began in earnest in November 2018. Keane briefly resurrected discussions with the unnamed competitor in early 2019 before deciding the merger with C&J was the better deal.

The deal almost fell apart at the end of May 2019 due to C&J’s insistence that it have a 52% / 48% equity split. It was resolved by C&J giving its shareholders a special pre-merger dividend $1 followed by a 50/50 split.

 

SEC filing – completion of merger

 

E&P company delisted after takeover

Isramco, an E&P company with its head office in the Galleria, has been delisted after its takeover by Naphtha Israel Petroleum, an Israeli public company. It’s been a long time coming. Back in March 2018, it was announced that Naphtha was in preliminary stages of evaluating a transaction. The deal was announced in May 2019.



The company was formed in 1982, focusing on exploration and production in offshore Israel. In 1997 it expanded its activities to the United States, which are now mainly in the Permian Basin.

The chairman and co-Chief Executive of Isramco is Haim Tsuff. He also controls Naphtha. Prior to the takeover, Naphtha and other entities controlled by Tsuff owned 73% of Isramco. The value of the takeover was $330 million, though the amount of cash outlay to third parties is $89 million.

The reason for the takeover appears to be a dispute between the company and Isramco Negev 2 Limited Partnership, another entity controlled by Mr Tsuff. The disagreement relates to what costs Negev should be included in its calculation of royalty payments on the Israeli Tamar field to the company.

The company believes it would win in arbitration. The claim against Negev could exceed $45 million. However, a bigger risk is that Negev stops paying Isramco its monthly royalty. In 2018, its royalty revenue was $31 million, or 38% of its total revenues.

You can see the complete list of Houston-area public companies here.

SEC filing – Isramco

 

Houston publicly-traded shell company makes large acquisition

Synthesis Energy Systems, essentially a publicly-traded shell company based in the Galleria area, has agreed to buy Australian Future Energy. The acquisition is an all-stock stock deal that values AFE at $36 million. SES currently owns 36% of AFE.



SES owns proprietary technology that produces synthesis gas from the burning of low-grade coal and using that gas as an input in the production of chemicals such as methanol or ammonia. In the current environment of relatively low oil prices and abundant natural gas, the technology is not able to compete economically.  In its last published quarterly results, the company had zero revenue and shareholders’ equity of $1.3 million.

AFE plans to acquire Australian energy resources such as coal and biomass so that it can produce synthesis gas.

To pay for the acquisition, the company is issuing 3.875 million shares at $6 each. It’s not clear how SES values AFE at $36 million. In its last quarterly results for the three months ending March 31, 2019, SES carried its 36% investment at zero. It also stated that AFE had a net loss of $245,000 for the nine months ending March 31, 2019 and that AFE had total equity of $542,000.

Prior to the announcement of the deal, the share of SES were trading at $1.80. Post market-close on Friday they were trading at $7.50. That would give the company a market capitalization of $10 million.

Earlier this year, SES had agreed to sell its gasification technology to AFE for $5.8 million in cash and 1 million shares in AFE. SES would have kept ownership rights for the technology in China. However the deal collapsed in September.

After the deal closes in 2020, Mr Kerry Packer, current CEO of AFE, will become CEO of SES, and Ron Higson, current COO of AFE, will become COO of SES. David Hiscocks, the Corporate Controller, will stay on but a new CFO will be appointed.

SEC filing – Synthesis Energy Systems

Houston skincare company sells for $845 million

Drunk Elephant has been bought by Shiseido, a Japanese beauty products company, for $845 million.

Tiffany Masterson, a mother of four who lives in the West University area of Houston, founded the company in 2012. She wanted to develop a line of non-toxic skincare products. In her first year of operation, her brother-in-law invested $300,000. The following year, her brother also invested and became President of the company.



Most of the company’s employees and back office functions are based in Newport Beach, California

The brand is now one of the top selling at retailer Sephora. San Francisco PE firm VMG Partners then invested in the business in 2017 and helped grow the brand internationally.

The company has projected revenues of $125 million for 2019. Forbes estimates that Ms Masterson will make $120 million when the deal closes at the end of the year.  She will stay on after the close as the Chief Creative Officer.

https://www.forbes.com/sites/chloesorvino/2019/10/08/hot-skincare-brand-drunk-elephant-sells-for-845-million-minting-founder-a-fortune/#29f315105140

 

 

 

 

Oilfield services company to split into two

TechnipFMC has announced that it will split into two separate publicly-traded companies (currently dubbed SpinCo and RemainCo). This comes less than 3 years after the merger of Technip and FMC in January 2017.



Production v E&C

They are not quite being split in the same way that they came together. The Engineering & Construction arm (primarily the old Technip business) is being spun off from the remaining business that will concentrate on production systems (primarily the old FMC business). However Loading Systems which supplies loading arms for LNG will be part of SpinCo. It was originally part of FMC.

SpinCo will have its head office in Paris and will be listed on the Euronet Paris Exchange. RemainCo will be based in Houston and have listings on the NYSE and the Euronet Paris Exchange.

SpinCo will have revenues of $6 billion and 15,000 employees. RemainCo will have revenues of $7 billion and 22,000 employees. The combined business currently has a market cap of $10 billion.

Failed Synergies

The current CEO, Doug Pferdehirt and current CFO, Maryann Mannen, will transfer to RemainCo. During a conference call today the CEO said;

“There are very few synergies between upstream and downstream. We are seeing the beginning of a shaping of our industry. We believe that what we are creating, others will follow. When you over-integrate, the customer can see you as greedy. We integrate where it clearly adds value to the customer.”

At the time the deal was announced in May 2016, then CEO of Technip, Thierry Pilenko, said;

“We have complementary skills, technologies and capabilities. Together, TechnipFMC can add more value across Subsea, Surface and Onshore/Offshore, enabling us to accelerate our growth.”

Integration costs $231m, Break-up costs ??

The company spent $231 million on integration costs between 2016 and 2018. Since the merger the stock has lost about a third of its value. That’s considerably better than the PHLX Oil Services index that has lost about 66% in that time, but much worse than the S&P 500 that has gained about a third.

I wonder how much it will cost to separate the businesses?

Press release – TechnipFMC split

E&P company now based in Houston after merger

Amplify Energy has completed its merger with Midstates Petroluem in an all-stock merger-of-equals.  The deal was announced back in May.

Midstates was publicly-traded and was based in Tulsa, OK. Now that the Amplify management are running the business, it has its head office in downtown Houston. The publicly-traded entity is now called Amplify Energy.



Amplify Energy is the successor reporting company of Memorial Production Partners, which was publicly-traded until entering Chapter 11 bankruptcy in January 2017. Amplify’s production assets are mainly in East Texas/North Louisiana, the Rockies and California.

Midstates also entered Chapter 11 bankruptcy in April 2016, emerging six months later. The business mainly operates in the Mississippian Lime formation in Oklahoma.

Fir Tree Capital Management, a New York investment firm is the single largest shareholder in both companies. It owns 35% of Amplify and 23% of Midstates. Two executives from Fir Tree are on both boards.

Before the deal was announced, shares were trading at $13. They are currently trading at $4.36 giving the business a market capitalization of $186 million and an enterprise value of $409 million.

The CEO of Amplify is Ken Mariani. He joined in May 2018. Prior to that he was the President at Enervest, a Houston energy investment firm. Martyn Willsher is the CFO. He was appointed to that role a year ago and was previously the Treasurer at Memorial Production Partners.

The management team of Midstates have left the company and received golden parachutes. CEO David Sambrooks received $2.9 million in cash and equity that was worth $2.4 million when the deal was announced but less than $1 million now. Chief Accounting Officer Richard McCullough received $0.7 million in cash and equity now worth $0.2 million.

The list of Houston-area companies can be found here