SandRidge Energy Inc.'s abandoned $746 million deal for Bonanza Creek Energy Inc. went off the rails over major shareholders' concerns that the acquisition looked too much like the debt-laden past of the driller, which emerged from bankruptcy in 2016.
The deal, originally announced in November, was intended to expand SandRidge's presence in the Colorado-based DJ Basin shale play. Instead, it immediately became a lightning rod for shareholder Icahn, who said the deal brought back memories of the reckless early years of SandRidge and was a "complete reversal of the company's post-bankruptcy strategy."
While SandRidge defended the agreement for the better part of a month, it began to see other major shareholders take Icahn Capital LP's side. Fir Tree Partners, which owns more than 8% of SandRidge stock, said in a Dec. 18 letter to the board of directors that the Bonanza acquisition was similar to what put the company in bankruptcy to begin with.
"The acquisition represents nonsensical empire building that echoes back to SandRidge's descent into bankruptcy when this same management team acquired disparate assets and added leverage and costs with reckless abandon," Fir Tree said.
Facing such a strong negative reaction, SandRidge ran up the white flag Dec. 28, saying it would pay Bonanza Creek $3.7 million for transaction-related expenses to back out of the deal.
"After consultation with SandRidge's largest shareholders, it became clear that the company would not receive approval for the transaction at the planned special meeting," SandRidge said. "After careful consideration, the decision was unanimously approved by the company's board of directors and an agreement was reached with Bonanza Creek to mutually terminate the merger agreement."
In a statement of it its own, Bonanza Creek said it would release its 2018 capital program and guidance in January.
"While we are disappointed with this result, we are very pleased with the progress that Bonanza Creek has made this year and will continue to focus on developing Bonanza Creek's assets and maximizing value for our shareholders," said Jack Vaughn, chairman of the company's board of directors.
Bonanza Creek shares dipped considerably during morning trading Dec. 29, falling nearly 7% to $27.62 by noon ET. SandRidge shares, on the other hand, were up 3.7%, at $19.86.