Icahn’s activism produces results
SandRidge (ticker: SD) and Bonanza Creek (ticker: BCEI) have terminated the previously-announced merger agreement, ending the largest U.S. deal in five months.
The $746 million SandRidge-Bonanza Creek merger would have created a major player in the DJ Basin, but a 17.4% premium was deemed too high. While SandRidge only paid about $2,500 per acre, far below the $30,000 and higher seen in the Permian this year, the purchase price equated to $47,215 per flowing BOE and $8.19 per BOE of reserves.
Activist investor Carl Icahn acquired a 13.5% stake in SandRidge about a week after the deal was announced, and began a campaign to oppose the transaction. This confrontation saw poison pills and threats of litigation, culminating in an announced proxy war.
SandRidge’s Board of Directors have concluded it would not receive approval for the transaction, and therefore terminated the agreement. As part of the agreement, SandRidge will reimburse Bonanza Creek $3.7 million for transaction related expenses.
SandRidge shares up on news
SandRidge’s share price jumped on the news, rising 12% to an intraday high of $21.41, above the pre-merger announcement price. Bonanza Creek shares dropped equally sharply, reaching $26.27.
“We’re obviously pleased with the result but we still have grave concerns about many of the things that the board has permitted to happen at the company,” Icahn said in an interview after the announcement.
What comes next?
The rejection of the Bonanza Creek deal means SandRidge must identify a new use for the funds that would have been spent in the transaction. The firm may look to return capital to shareholders, as this has become very popular in recent months. Alternatively, a different deal may be proposed. Analysts recently mentioned Midstates Petroleum (ticker: MPO) as a possible target, as both SandRidge and Midstates have extensive Mississippi Lime operations.
