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APA (APA) to Buy Callon Petroleum in a $4.5 Billion Deal
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APA Corporation (APA - Free Report) announced that it will acquire Callon Petroleum Company through an all-stock deal valued at approximately $4.5 billion, including Callon's net debt. This tremulous development is poised to reshape the dynamics of the industry, bringing together two formidable entities to create a powerhouse with unparalleled scale and operational prowess.
Transaction Overview
In this all-stock transaction, each outstanding share of Callon common stock will be exchanged for 1.0425 shares of APA common stock, translating to an implied value of $38.31 per Callon share based on the closing price of APA common stock on Jan 3, 2024. The strategic move is anticipated to be accretive to all key financial metrics, significantly enhancing APA's inventory of high-quality, short-cycle opportunities.
Financial Implications and Structure
Following the deal’s closure, existing APA shareholders are expected to dominate the ownership, holding approximately 81% of the combined company, while the remaining 19% will be held by the existing Callon shareholders. The deal involves the issuance of approximately 70 million shares of APA common stock, supported by a $2.0 billion committed financing package from JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc., and Wells Fargo Bank, National Association, LLC.
Pro Forma Positioning
The combined entity is expected to register a total company production of more than 500,000 BOE per day, with a pro forma average daily Permian Basin production of 311 Mboe/d in third-quarter 2023. This marks a substantial 48% increase from APA's standalone Permian Basin production. The enterprise value will skyrocket to more than $21 billion, solidifying the combined entity's position as an industry heavyweight.
Strategic Rationale
APA's CEO and president John J. Christmann IV emphasized the alignment of this transaction with the company's overarching portfolio strategy. The acquisition complements APA's existing Permian assets, particularly enhancing its footprint in the Delaware Basin. Christmann expressed confidence that the increased scale would unlock significant synergies, both in terms of overhead and cost of capital.
Management Insights
Christmann further highlighted APA's proven ability to deliver robust results in the Permian Basin, emphasizing the shared vision to maintain a diversified portfolio and foster exploration-driven development opportunities. The company's executive management team is set to lead the combined entity, retaining its headquarters in Houston, TX.
Global Impact and Portfolio Diversity
Following the acquisition, APA's worldwide pro forma production mix will lean heavily toward the United States, creating approximately 64% of the portfolio, with the remaining 36% allocated to international endeavors. APA's global portfolio includes large-scale legacy assets in the United States and Egypt, coupled with ongoing development projects, including a significant FPSO development offshore Suriname. The company's exploration portfolio boasts some newly acquired large-scale blocks offshore Uruguay and onshore state-land leases in Alaska.
The Road Ahead
With the transaction unanimously approved by both APA and Callon’s board of directors, the deal is slated to close during the second quarter of 2024. However, this is contingent on customary closing conditions, termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements (HSR) Act of 1976, and approval from shareholders of both companies.
Stakeholder Appreciation
Joe Gatto, Callon's president and CEO, expressed pride in the significant strides taken to enhance the company’s asset base, operational performance and balance sheet. He anticipates the collaboration with APA to offer an enhanced value proposition, leveraging APA's depth of experience and strong execution in the Permian Basin.
Conclusion
The acquisition of Callon by APA is a significant development in the energy sector, aligning with the latter’s commitment to maintaining a diverse portfolio. The acquisition aims to unlock synergies and capture operating efficiencies, positioning the combined entity for sustained success in the evolving energy landscape. It offers investors new growth opportunities and underscores the transformative impact of strategic acquisitions in today's dynamic business environment.
Zacks Rank and Key Picks
Currently, APA and CPE hold a Zacks Rank #3 (Hold) each.
The Williams Companies is valued at $44.17 billion. The company currently pays a dividend of $1.79 per share, or 4.93%, on an annual basis.
WMB, the U.S.-based energy infrastructure company, operates through Transmission & Gulf of Mexico, Northeast G&P, West and Gas & NGL Marketing Services segments.
MUSA is worth $7.71 billion. In the past year, its shares have risen 39.2%.
MUSA is involved in the marketing of retail motor fuel products and convenience merchandise. It operates retail gasoline stores, principally in the Southeast, Southwest and Midwest United States.
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APA (APA) to Buy Callon Petroleum in a $4.5 Billion Deal
APA Corporation (APA - Free Report) announced that it will acquire Callon Petroleum Company through an all-stock deal valued at approximately $4.5 billion, including Callon's net debt. This tremulous development is poised to reshape the dynamics of the industry, bringing together two formidable entities to create a powerhouse with unparalleled scale and operational prowess.
Transaction Overview
In this all-stock transaction, each outstanding share of Callon common stock will be exchanged for 1.0425 shares of APA common stock, translating to an implied value of $38.31 per Callon share based on the closing price of APA common stock on Jan 3, 2024. The strategic move is anticipated to be accretive to all key financial metrics, significantly enhancing APA's inventory of high-quality, short-cycle opportunities.
Financial Implications and Structure
Following the deal’s closure, existing APA shareholders are expected to dominate the ownership, holding approximately 81% of the combined company, while the remaining 19% will be held by the existing Callon shareholders. The deal involves the issuance of approximately 70 million shares of APA common stock, supported by a $2.0 billion committed financing package from JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc., and Wells Fargo Bank, National Association, LLC.
Pro Forma Positioning
The combined entity is expected to register a total company production of more than 500,000 BOE per day, with a pro forma average daily Permian Basin production of 311 Mboe/d in third-quarter 2023. This marks a substantial 48% increase from APA's standalone Permian Basin production. The enterprise value will skyrocket to more than $21 billion, solidifying the combined entity's position as an industry heavyweight.
Strategic Rationale
APA's CEO and president John J. Christmann IV emphasized the alignment of this transaction with the company's overarching portfolio strategy. The acquisition complements APA's existing Permian assets, particularly enhancing its footprint in the Delaware Basin. Christmann expressed confidence that the increased scale would unlock significant synergies, both in terms of overhead and cost of capital.
Management Insights
Christmann further highlighted APA's proven ability to deliver robust results in the Permian Basin, emphasizing the shared vision to maintain a diversified portfolio and foster exploration-driven development opportunities. The company's executive management team is set to lead the combined entity, retaining its headquarters in Houston, TX.
Global Impact and Portfolio Diversity
Following the acquisition, APA's worldwide pro forma production mix will lean heavily toward the United States, creating approximately 64% of the portfolio, with the remaining 36% allocated to international endeavors. APA's global portfolio includes large-scale legacy assets in the United States and Egypt, coupled with ongoing development projects, including a significant FPSO development offshore Suriname. The company's exploration portfolio boasts some newly acquired large-scale blocks offshore Uruguay and onshore state-land leases in Alaska.
The Road Ahead
With the transaction unanimously approved by both APA and Callon’s board of directors, the deal is slated to close during the second quarter of 2024. However, this is contingent on customary closing conditions, termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements (HSR) Act of 1976, and approval from shareholders of both companies.
Stakeholder Appreciation
Joe Gatto, Callon's president and CEO, expressed pride in the significant strides taken to enhance the company’s asset base, operational performance and balance sheet. He anticipates the collaboration with APA to offer an enhanced value proposition, leveraging APA's depth of experience and strong execution in the Permian Basin.
Conclusion
The acquisition of Callon by APA is a significant development in the energy sector, aligning with the latter’s commitment to maintaining a diverse portfolio. The acquisition aims to unlock synergies and capture operating efficiencies, positioning the combined entity for sustained success in the evolving energy landscape. It offers investors new growth opportunities and underscores the transformative impact of strategic acquisitions in today's dynamic business environment.
Zacks Rank and Key Picks
Currently, APA and CPE hold a Zacks Rank #3 (Hold) each.
Investors interested in the energy sector might look at some better-ranked stocks like The Williams Companies (WMB - Free Report) and Murphy USA Inc. (MUSA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Williams Companies is valued at $44.17 billion. The company currently pays a dividend of $1.79 per share, or 4.93%, on an annual basis.
WMB, the U.S.-based energy infrastructure company, operates through Transmission & Gulf of Mexico, Northeast G&P, West and Gas & NGL Marketing Services segments.
MUSA is worth $7.71 billion. In the past year, its shares have risen 39.2%.
MUSA is involved in the marketing of retail motor fuel products and convenience merchandise. It operates retail gasoline stores, principally in the Southeast, Southwest and Midwest United States.