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Paulson urges Callon to sell itself, cancel Carrizo acquisition
Posted on Monday, 09 September 2019 15:04
Paulson & Co is pressuring Callon Petroleum to ditch a USD 3.20 billion proposed public takeover of Carrizo Oil & Gas in favour of selling itself.

The hedge fund holds 21.60 million shares, representing a 9.5 per cent stake, in the Permian Basin-focused independent energy company and said it intends to vote against “the value-destructive” acquisition.

It noted that since announcing the offer for Carrizo, Callon’s own market value has plummeted by more than a third, which “demonstrates shareholder dissatisfaction with the deal and its terms”.

Shares in the company fell 15.9 per cent from USD 6.40 on 12th July, the last closing price prior to the announcement, to USD 5.38 following the news and have since dropped to USD 4.08 by 6th September.

The 36.2 per cent decline is “significantly more severe” than that of the overall sector and highlights the scepticism of investors to paying a 25.0 per cent premium for assets based in the less attractive Eagle Ford.

Not only does this translate into the transfer of USD 240.00 million in value from Callon’s own shareholders to those of Carrizo’s but also the oil and gas producer intends to dilute its equity base by issuing scrips as consideration.

Paulson further argues the Houston-headquartered hydrocarbon explorer would lose its standing as a pure-play company, which trade at meaningfully higher valuations than multi-basin peers.

For example, the hedge fund notes those with exposure solely to the Eagle Ford trade at around 3.8x, compared to 5.7x for those with a Permian-only focus.

Paulson is urging the company to pursue a sale of itself instead, especially considering it could be worth about USD 6.69 apiece, or 64.0 per cent to the current market price, based on the Permian average.

However, if Callon buys Carrizo, the addition of the undesirable Eagle Ford to the portfolio would “discourage future suitors” and the multiples they would be willing to pay.

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