A year after emerging from bankruptcy, shale oil and gas driller SandRidge Energy Inc. hopes to close a deal after the holidays to buy fellow producer Bonanza Creek Energy Inc. for $746 million in cash and stock, a move that it would broaden its portfolio to more shale oil acres in Colorado and in its core in Oklahoma's Mississippian Lime.

But two of SandRidge's three largest shareholders want the company to put the deal on ice, saying it makes no sense, drains cash from the company and dilutes its value, despite repeated pledges from management to protect the balance sheet.

If the Bonanza Creek deal gets done, said billionaire activist investor Carl Icahn, SandRidge's largest shareholder, he could go gunning to replace SandRidge's entire board.

Icahn's master fund, Icahn Capital LP, said in a Nov. 22 SEC filing that it thinks SandRidge is undervalued. Icahn's family of funds started buying the stock in October and now owns 13.5% of the company's shares. According to the filing, the Icahn funds "are considering all their options" and reserve the right to call a special meeting of shareholders "to seek to remove the [company's] board of directors."

Icahn's personal billions dwarf SandRidge's $624 million market capitalization. Conceivably, Icahn could bypass management and the board of directors and just buy the whole company, but SandRidge's board got out in front of that option when it announced a new shareholder rights plan Nov. 27 limiting the influence of new investors and any stock bought in excess of 10% of the company's total.

Icahn dropped his bomb two days after SandRidge's third-largest shareholder, activist fund Fir Tree Partners, with an 8.2% stake, announced in a Nov. 20 news release that it objects to the merger. "The proposed acquisition of Bonanza makes no economic or strategic sense," Fir Tree said.

SandRidge's second-largest stakeholder, Guggenheim Partners LLC, with a 12.4% stake, did not respond Nov. 29 to questions about where it stood on the deal.

SandRidge said Bonanza will add 15.8 million barrels of oil equivalent per day (52% oil) to SandRidge's 38.8-MMboe/d volumes (27% oil) and allow it to expand into Colorado's DJ Basin while adding more acreage to its long-held leasehold in northern Oklahoma and southern Kansas' Mississippian Lime play.

"This acquisition greatly enhances our existing portfolio by adding a deep inventory of drill-ready locations in the DJ Basin of Colorado and is highly complementary to our existing North Park [Colo.], northwest STACK [Oklahoma] and Mississippian assets," SandRidge CEO James Bennet said when the deal was announced Nov. 15.

"Our [risk arbitrage] colleagues believe the biggest hurdle is approval from [SandRidge] shareholders, some of whom were surprised by the deal's scale/timing," Mizuho Securities USA analyst Tim Rezvan said Nov. 16. "Expect management to be in active dialogue with [SandRidge] shareholders in the days ahead and note attractive pro forma valuations support the acquisition."

"We believe this proposed acquisition represents a complete about face by management on its post-bankruptcy strategy and would be extremely value destructive to shareholder value," Fir Tree managing directors Evan Lederman and David Proman said in their Nov. 20 statement. The firm "intends to vote against this nonsensical and overpriced acquisition," they executives said.

In May 2016, SandRidge filed for Chapter 11 bankruptcy protection, listing $4 billion in debts from its buying spree in the Mississippian Lime. Post-bankruptcy, Fire Tree said, "management's guidance to shareholders was to protect the balance sheet, reduce operating costs, generate free cash flow and organically develop its significant remaining inventory in the northwest STACK and North Park Basin. The proposed acquisition would put SandRidge in a fifth and sixth basin with no obvious synergies between any of its assets." Oklahoma investment adviser Jake Dollarhide, CEO of Tulsa-based Longbow Asset Management, said he is a SandRidge shareholder and he likes the deal. It shifts SandRidge's gassy production mix more toward oil on properties that are complementary, Dollarhide said.

"SandRidge made a compelling case," Dollarhide said Nov. 29. "It will bolster drilling activity on contiguous acreage."

Dollarhide critiqued the investors opposing the deal. "Ninety percent of the time, 'activism' is really profit-seeking," he said. "They like to be cute. At the end of the day, it's about lining their pocket."

But, Dollarhide said, "Carl [Icahn] is brilliant. I'm not suggesting that he might not get want he wants."