Fracking Merger

[DanilKa + 443]

"Merger of equals" - Kean and C&J in all-stock deal becoming 3rd largest pressure pumper.

Market likes it, FRAC and CJ up 7 and 20%. $100MM synergies are expected (aren't they always)

Patterson UTI and Superior may divest their pressure pumping - any buyers? @Mike Shellman? :)

https://www.spe.org/en/jpt/jpt-article-detail/?art=5609

Deal terms
• All-stock merger of equals with a total enterprise value of $1.77bn (using Friday’s (6/14) closing prices), including the pro-forma net debt of $255mm that takes into account the $1/share ($67mm) dividend paid by CJ to current CJ shareholders before the deal closes.
• If including CJ special dividend, implied 15% premium paid for CJ (5% excluding dividend). Based on our math, the deal terms imply an approximate 15% premium for CJ when including the $1/share paid out to CJ shareholders. However, excluding this dividend that will be paid out by CJ (not by FRAC) to CJ shareholders before closing, the premium is only 5%.
• CJ shareholders will receive 1.6149 shares of FRAC common stock for each share of CJ common stock owned. As a result, the pro-forma diluted share count for the new company will be roughly 216.3mm shares, with each company owning 50%. Based on last Friday’s closing stock price of FRAC, this implies a market cap of $1,512mm for the new company ($1,618mm based on FRAC’s closing stock price today [6/17/19]). The share exchange is expected to be tax-free.
• CJ to pay out $1/share dividend to shareholders. The merger agreement permits CJ to pay its shareholders a cash dividend of $1.00 per share ($67mm) prior to closing. The dividend payment will be funded from CJ’s 2Q/3Q FCF generation and the $89mm of cash currently on the balance sheet.
• 4Q19 closing of the merger. The merger is expected to close during 4Q19, following CJ and FRAC shareholder approval, regulatory approvals and receipt of other customary closing conditions.
• Management team will be a mix of CJ and FRAC. The new company will be led by President and CEO Robert Drummond, who is current FRAC CEO, while Patrick Murray, currently Chairman of CJ’s board, will be Chairman. Jan Kees van Gaalen, current CFO of CJ, will serve as Executive VP and CFO while Greg Powell, current FRAC CFO, will serve as Executive VP and Chief Integration Officer of the combined company.
• CJ & FRAC to have equal representation on the board. The combined company's Board of Directors will comprise 12 directors, six of whom will be from the CJ Board, including the Chairman of CJ, and six of whom will be from the FRAC Board, including the CEO of FRAC.

P.S. I know how to spell "fracking" right

[Mike Shellman + 548]

Daniel, I am going to pass on this HPP thing; thanks mate. One, I am not sure you would move to the US to run it and I don't blame you. Two, we are now, I fear, fewer than 18 months (and one more rape claim)  from a political change in the US that is going to shake the frac'ing industry to its core. Three, you need water to frac with and in W. Texas that will not be possible as soon as El Paso dries up and La Nina comes home. Four, I'd have to borrow money to do this and I ain't that stupid. Borrowing money to service the shale oil industry, that itself is totally dependent on borrowing MORE money to drill more lousy wells, seems REALLY stupid to me.  Which reminds me, give the CEO a call, he can write a check for this. He is an oil mogul though I'd probably get a bank draft. Or you can always call the big W. Texas royalty owner. These are two heavy hitters and always willing to put their money where their mouths are.

I hope you are well, sir. I hope you have a wet winter down yonder; it was a balmy 118 F today on location in S. Texas. 

Edited June 22, 2019 by Mike Shellman

[DanilKa + 443]

9 hours ago, Mike Shellman said:

Daniel, I am going to pass on this HPP thing; thanks mate. One, I am not sure you would move to the US to run it and I don't blame you. Two, we are now, I fear, fewer than 18 months (and one more rape claim)  from a political change in the US that is going to shake the frac'ing industry to its core. Three, you need water to frac with and in W. Texas that will not be possible as soon as El Paso dries up and La Nina comes home. Four, I'd have to borrow money to do this and I ain't that stupid. Borrowing money to service the shale oil industry, that itself is totally dependent on borrowing MORE money to drill more lousy wells, seems REALLY stupid to me.  Which reminds me, give the CEO a call, he can write a check for this. He a mogul, though I'd probably make sure the check was a bank draft. Or, you can always call the big W. Texas royalty owner. These are heavy hitters with their pulse on the American shale oil industry and always willing to put their money where their mouth is.  

I hope you are well, sir. I hope you have a wet winter down yonder; it was a balmy 118 F today on location in S. Texas. 

Love you response on many levels, hit many points. 

Right, no aspiration to move to US  in your SHTF moment. 

Shale have more life in it - I’ve looked at @Dennis Coyne estimates and it’s best I’ve seen so far. True, plenty of resources and capital required and money spigots seems closing (can change on a dime with Fed). 

All the best to you, Sir. 

Still in drought in some areas; some others had ~half a million cattle drowned after ~meter of rain few month back. Quite pleasant where I live. Come visit!