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Callon fires back at major critic of planned Carrizo acquisition

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Callon fires back at major critic of planned Carrizo acquisition

The management of Callon Petroleum Co. fired back at a major critic of its planned acquisition of Carrizo Oil & Gas Inc. on Sept. 9, saying the merger would maximize shareholder value.

Paulson & Co. Inc. sent shares of Callon surging Sept. 9 when it released a letter to shareholders announcing its intention to vote against the planned acquisition of Carrizo. Paulson, which owns approximately 9.5% of outstanding Callon stock, said the $3.2 billion all-stock deal was "value-destructive" and Callon should put itself on the market instead. Paulson also accused Callon's board of directors of having divergent interests from those of shareholders, something the company denied in its response.

"Our board of directors is committed to acting in the best interests of Callon shareholders and will continue to take actions to deliver returns on their behalf," the company said in its Sept. 9 letter. "The Callon board, with the assistance of outside financial and legal advisors, carefully evaluated the combination with Carrizo and determined that the transaction delivers compelling value to Callon shareholders."

In its letter, Paulson complained that Callon's acquisition of Carrizo and its assets in the Eagle Ford Shale would be counterproductive as it would destroy the company's position as a Permian Basin-only producer — a move, it said, that would make the company less appealing to potential buyers. Paulson also called Carrizo's acreage in the Eagle Ford "inferior" and not worth the premium Callon was willing to pay for it. In their response, Callon's management disputed all of Paulson's assertions.

"We remain confident in the strategic and financial benefits of our combination with Carrizo, which will create a leading oil and gas company with scaled development operations focused on the Permian Basin in a transaction that is accretive on all per share metrics. The pro forma company will allocate more capital to the Permian Basin than the combined Callon and Carrizo standalone development plans, supported by strong free cash flow from the Eagle Ford Shale," the company said. Callon added that it believed the acquisition of Carrizo's Permian holdings would allow it to "better compete in this dynamic basin."

In a further attempt to rebut Paulson's claims the upper management of Callon was working against shareholder interests, the company said it would continue to concentrate on four key objectives: improving cash returns on capital invested; generating sustainable free cash flow; reducing its leverage; and focusing on the optimization of its core portfolio.

"The combination of our two high quality asset bases and complementary teams accelerates our ability to deliver on these goals on a sustained basis," Callon said.