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Merging US Oil and Gas Firms Callon And Carrizo Amend Merger Agreement Following Pushback
Friday 15 November 2019

15 November 2019 - US-based oil and gas companies Callon Petroleum Company (NYSE: CPE) and Carrizo Oil and Gas, Inc. (NASDAQ: CRZO) have amended the existing terms of their agreement for Callon to acquire Carrizo in an all-stock transaction, the companies said.
Essentially, Callon drastically cut the value of the deal following negative comments from a leading shareholder proxy and a substantial shareholder in the company.
Under the amended terms, Carrizo shareholders will receive 1.75 shares of Callon common stock for each share of Carrizo common stock they own. This values Carrizo at just USD 723m – well below the USD 1.2bn value under the original deal.
With the amended exchange ratio, Callon shareholders will own approximately 58% of the combined company and Carrizo shareholders will own approximately 42% on a fully diluted basis.
Based on the closing prices of Callon and Carrizo common shares on the pre-announcement date of July 12, 2019, the amended exchange ratio represents a premium of 6.7% to Carrizo shareholders.
The boards of directors of both Callon and Carrizo have unanimously reaffirmed their support for the transaction as modified by the amendment to the merger agreement. In addition, each of the Carrizo directors remains committed to vote his or her shares in favor of the transaction.
The amendment to the merger agreement adjusts the Carrizo termination fee to USD 20m in certain circumstances, including in some instances in which a competing transaction for Carrizo has been proposed.
The amendment also eliminates Carrizo's obligation to reimburse Callon's expenses if Carrizo's shareholders do not approve the transaction and increases the amount of Carrizo's expenses that Callon would reimburse by USD 2.5m if Callon's shareholders do not approve the transaction.
Callon and Carrizo intend to file supplemental proxy materials with the Securities and Exchange Commission in the coming days.
The deal has come under fire recently, with proxy advisor Institutional Shareholder Services throwing shade on the terms.
Paulson and Co, which manages funds owning around 9.5% of Callon's stock, also opposed the original deal. Paulson cites how Callon's price has declined sharply since the 15 July announcement of the deal (it has dropped by 36%), indicating that the market agrees with its assessment.
In July the boards of Callon Petroleum and Carrizo Oil and Gas unanimously approved a definitive agreement under which Callon will acquire Carrizo in an all-stock transaction.
This will create an oil and gas company with scaled development operations across a portfolio of core oil-weighted assets in both the Permian Basin and Eagle Ford Shale.
Under the terms of the agreement, Carrizo shareholders will receive a fixed exchange ratio of 2.05 Callon shares for each share of Carrizo common stock they own.
This represents USD13.12 per Carrizo share based on Callon's closing common stock price on July 12 and a premium of 18% to Carrizo's trailing 60-day volume weighted average price.
Following the close of the transaction, Callon shareholders will own approximately 54% of the combined company, and Carrizo shareholders will own approximately 46%, on a fully diluted basis. The all-stock transaction is intended to be tax-free to Carrizo shareholders.
Upon closing, the board of directors of the combined company will consist of 11 members, including Callon's eight current Board members and three to be appointed from the board of Carrizo. The combined company will be led by Callon's executive management team and will remain headquartered in Houston, Texas.
The transaction, which is expected to close during 4Q19, is subject to customary closing conditions and regulatory approvals, including the approval of shareholders of both companies.
Callon is an independent energy company focused on the acquisition and development of unconventional onshore oil and natural gas reserves in the Permian Basin in West Texas.
Carrizo Oil and Gas, Inc. is a Houston-based energy company actively engaged in the exploration, development, and production of oil and gas from resource plays located in the United States. Its current operations are principally focused on proven, producing oil and gas plays in the Eagle Ford Shale in South Texas and the Permian Basin in West Texas.
J.P. Morgan LLC is serving as exclusive financial advisor to Callon and Kirkland and Ellis LLP is serving as legal advisor to Callon. JPMorgan Chase Bank, N.A. and BofA Merrill Lynch provided underwritten financing to Callon to support the transaction. RBC Capital Markets, LLC and Lazard are serving as financial advisors to Carrizo and Baker Botts L.L.P. is serving as legal advisor to Carrizo.
Details
Date Published: 15/11/2019
Target: Carrizo Oil and Gas, Inc
Country: USA
Deal Size: 723m (USD)
Sector: Petroleum/Natural Gas/Coal
Type: Corporate acquisition
Financing: Stock
Status: Agreed
Vendor:
Buyer: Callon Petroleum
Buyer Advisor: J.P. Morgan , Kirkland and Ellis , JPMorgan Chase Bank
Comment:
Callon relents to objections of ISS, Paulson and Co, scales back drastically on offer price

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