Houston-based Callon Petroleum Co. is taking its case for the planned $3.2 billion acquisition of Carrizo Oil & Gas Inc. directly to its shareholders as it fights back against vocal critics of the deal.
Hedge fund Paulson & Co. Inc., which owns more than 9% of Callon's outstanding stock, has publicly opposed the acquisition, calling it "value-destructive" and calling for Callon to put itself on the market instead. In a Sept. 26 message to investors, the company's leadership argued in favor of the merger.
"The strategic and financial benefits of Callon's combination with Carrizo are compelling," President and CEO Joe Gatto said. "We are creating a differentiated oil and gas company with scaled development operations focused on premier asset bases and supported by accelerated cash flow and capital efficiency. ... Together, we will be well-positioned to accelerate our strategy and deliver significant value to our shareholders."
One of Paulson's major complaints with the proposed acquisition of Carrizo is it would alter Callon from a pure-play Permian Basin operator to a company with holdings in the Eagle Ford Shale as well. The hedge fund has called Carrizo's 80,000 net acres in the Eagle Ford "inferior" and claims Callon's expansion into the play would devalue the company. Callon's management team hit back at that assertion, saying the Eagle Ford assets would add "a well-established and repeatable free cash flow generating business" to its Permian operations.
The acquisition of Carrizo would increase Callon's position in the Permian to approximately 120,000 net acres, including 90,000 in the Delaware Basin. Those assets, Callon said, would give the company almost two decades of delineated inventory.
Callon's position received a boost from SunTrust Robinson Humphrey Sept. 26, with the firm releasing an analyst's note that backed many of the company's assertions. SunTrust said it believes the acquisition of Carrizo would be accretive, with quicker and greater free cash flow than if the two companies remained separate.
"Callon did a good job ... of telling the story surrounding the merits of the Carrizo acquisition, but investor relations/decisions remain cautious we believe largely due to the current challenging energy tape," the firm said. "While a number of investors comments on the deal were positive, it appeared much of the naysayers on the deal were negative on energy in general … We project the combined company to generate sustained growth and FCF beginning 2Q20 assuming Delaware operational forecasts go as planned."
