Shares of Callon Petroleum Co. were up sharply on news one of the company's largest shareholders has come out in opposition to its planned acquisition of Carrizo Oil & Gas Inc., suggesting instead that Callon itself should be up for sale.
The leadership of Paulson & Co. Inc., which owns approximately 9.5% of Callon shares, said in a Sept. 9 letter to Callon's board of directors that it would vote against the "value-destructive acquisition" of Carrizo. Callon's stock price on the New York Stock Exchange has fallen from $6.40 per share July 12, the last day of trading before the $3.2 billion all-stock deal was announced, to $4.08 per share Sept. 6. Paulson said the steady decline in the company's stock price was an indication of shareholder anger.
"Callon stock's astounding 36% decline since the transaction was announced demonstrates shareholder dissatisfaction with the deal and its terms," the firm said. Paulson went on to slam Carrizo's holdings in the Eagle Ford Shale as "inferior" and said paying a 25% premium was "unwarranted." More importantly, the firm said, the acquisition of the Eagle Ford assets would strip Callon of one of its greatest value points: being a pure-play producer in the Permian Basin.
"Since 2016, Callon has raised $2.7 billion of external capital to position itself as a leading pure-play Permian producer. It has acquired four highly productive and prospective asset packages in the Permian for $1.8 billion and spent the remaining capital to drill out these assets," Paulson said. "The proposed acquisition of Carrizo, a primarily Eagle Ford producer, is an abrupt departure from the strategy that Callon has articulated. Permian pure-play companies trade at meaningfully higher valuations than multi-basin peers."
Instead of buying Carrizo, Paulson said, the board should do what was best for Callon's shareholders and put the company on the market. The firm said Callon's value could be increased by 64% in comparison to its current stock price if it were sold.
"We believe there would be many interested potential acquirers of Callon. Due to the sharp disparity between Callon's potential takeover value and its current stock price, we suggest that Callon's board and management pursue a sale of the company, rather than the dilutive transaction currently proposed," Paulson said. The firm also accused the leadership and board of Callon of having interests that have "diverged" from those of shareholders.
Investors in Callon appeared to be supportive of Paulson's stance, as company shares were up more than 7.2% by midmorning Sept. 9. Callon's management team has yet to make a statement regarding the Paulson letter.
