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Fight over Carrizo merger turns uglier as Callon slams Paulson's 'false' claims

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Fight over Carrizo merger turns uglier as Callon slams Paulson's 'false' claims

The back and forth between Callon Petroleum Co. and one of its largest shareholders over the planned $3.2 billion acquisition of Carrizo Oil & Gas Inc. continues, with Callon slamming Paulson & Co. Inc. for what it called "objectively false" comments on the deal.

The independent producer and the investment firm have engaged in tit-for-tat criticism of one another since Paulson, which owns approximately 9.5% of Callon's outstanding stock, publicly announced its opposition to the Carrizo acquisition, which it called "value destructive," in early September. In its latest public statement, released Oct. 22, Paulson accused Callon's management team of pushing a deal that enriches them while costing shareholders more than $600 million in lost value due to the stock's decline since the Carrizo deal was announced.

"If the transaction closes, shareholders will not only suffer steep losses, they will be paying fees to the parties responsible for causing the destruction in value," the firm said.

In its Oct. 23 response, Callon said Paulson's statement contained a number of "objectively false and misleading statements" on the merger in an effort to sway shareholders against it. The company defended its leadership, saying its management team and board of directors have "a track record of value-enhancing acquisitions."

The Carrizo deal, Callon asserted, will benefit shareholders through an expanded asset base and increased cash flow and could make the company a more attractive takeout target.

"Far from precluding any future alternatives for Callon, this transaction improves strategic optionality and creates a stronger and more attractive company for investors as well as prospective buyers or merger partners," the company said.

Paulson's Oct. 22 statement accused Carrizo executives of having an ulterior motive for pushing for the merger, saying it was "shocked" Callon's top brass could receive up to a $10.7 million "success fee" upon completion of the deal, even as the company's stock has been halved in value. In its rebuttal, Callon said the "success fee" did not exist.

"Any potential benefits are payable only if the executive is terminated in connection with the transaction and are pursuant to a broad-based severance program for all employees," the company said. Callon also responded to Paulson's accusation that the acquisition "explodes" the company's net debt while being highly dilutive to free cash flow per share, saying the investment firm was "fundamentally incorrect" in its assertions.

"Paulson's calculation of Callon's stand-alone free cash flow excludes capitalized G&A and interest while their pro forma free cash flow figure includes capitalized G&A and interest. To the contrary, Callon reiterates that the combined company is projected to generate highly accretive free cash flow per share for Callon shareholders," the company said.

Callon shareholders will vote on the planned acquisition Nov. 14.