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Icahn teams with protege to explore takeover of Permian driller Energen

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Icahn teams with protege to explore takeover of Permian driller Energen

Activist investor Carl Icahn and his former pupil Keith Meister of Corvex Management LP are teaming up for a potential takeover of Permian Basin driller Energen Corp., according to SEC filings and Icahn himself.

Icahn said late May 21 that he thinks Energen is worth $100 per share, or roughly $9.7 billion, which is about $2.8 billion more than Energen's market value. Icahn and Corvex together own 9.9% of Energen's stock, according to a May 21 SEC filing that disclosed that Icahn bought 2 million Energen shares from Corvex and took out options on 2 million more shares with a view toward buying Energen outright.

Icahn's motives are a bit more nuanced, according to a May 21 interview on CNBC. He would like to wrestle the company away from its current leadership by purchasing Energen outright, with or without any partners, and flip it to an oil and gas producer that can benefit from any synergies the combination brings. "To say it bluntly … the board isn't doing what I consider to be their job, which is to let shareholders decide if it should be sold," he said.

"I don't presume to feel I'm the right buyer for [Energen] because there's such synergies for another company." Icahn told the TV network. "When they bought RSP, [Concho Resources Inc.] found synergies of over $2 billion. … [Concho] paid $80,000 an acre for RSP. We sell today in the market at $27,000 an acre. They paid 10 times EBITDA; we sell at 7 times EBITDA. You don't have to be a genius to put those numbers together."

Combined, Meister's Corvex and Icahn Capital LP could own 12.8% of Energen stock if Icahn exercises his options. Icahn said May 21 that he has plenty of cash looking for a home after Icahn Enterprises LP's 40% gain on the market in the past year. The idea of joining forces came out of a conversation while Meister was visiting Icahn on May 18.

An Energen spokesman had no comment May 22.

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The pure-play Energen has a nearly 150,000-acre leasehold in the Permian, split between the Midland and Delaware sub-basins, according to a May 15 company presentation. The company reported adjusted earnings of 81 cents per share in the most recent quarter, compared to losses of 13 cents per share in 2017's first quarter. The performance bump came from a 63% increase in crude oil production, to 54,400 barrels per day, according to Energen's May 8 earnings release. Energen's first-quarter adjusted EBITDA was $240.6 million, the company said.

The Permian is ripe for consolidation through mergers and acquisitions, analysts have said. "This is an industry that consolidates. We would expect consolidation to continue as larger players look to continue shoring up good acreage while [private equity] firms buy up the mature assets," Sanford C. Bernstein & Co. LLC said in an April 17 note. "Consolidation should benefit well-positioned companies with core acreage in key plays, particularly the Permian."

Since late March, Energen's stock has outperformed the benchmark S&P 500 by roughly 20 percentage points, according to S&P Global Market Intelligence data. Just after 2 p.m. on May 22, Energen shares were off almost 2%, at $70.37, but they gained 6.5% the day before. The average of analysts' price targets compiled by S&P Global Market Intelligence on May 22 was $78.71.

Icahn said one Icahn Enterprises analyst had been tracking Energen as a target when Meister approached. Meister, who worked for Icahn for seven years before leaving to form Corvex, has been a thorn in Energen's side for nearly a year. Energen's board has rejected his demand that the company take advantage of skyrocketing Permian land prices and put itself up for sale.

"We like to buy things relatively cheaply where companies are undervalued," Icahn told CNBC.

Energen settled with Corvex on March 7, awarding Meister two seats on an expanded 11-member board. Vince Intrieri, a former senior managing director at Icahn's family of funds, and Jonathan Cohen, founder of Atlas Energy and Atlas Pipeline Partners, were elected to those seats.