Investigation May Be Why Stocks For Carrizo Oil & Gas, Inc. And Callon Petroleum Company Tumbled Today

[David Zernhelt + 6]

I invested into Callon Petroleum Company (CPE) yesterday & bought 1650 shares @ $5.46 per share.  I could’ve sold them when the stock went to $5.805, but decided to ride it for another day.  Then today, the (CPE) stock price falls all the way down to $5.21 & set a new 52-week record low.  Fortunately, I cashed in my shares when it fell to $5.49.  So, now I’m very skeptical of investing in that stock because I think that (CPE) may fall down even further and form a new price range.  To all the investors out there, be careful on the Callon Petroleum Company stock!  

I’m aware that Callon Petroleum did an acquisition with Carriizo Oil & Gas, Inc. (CRZO) and made that announcement this past Monday.....just advising investors to be very cautious and allow further analyzing of the (CPE) stock price.  So far, (CPE) continues to be trending downward.  Will continue to monitor this stock and all of its news releases.  

I also did take notice that the (CRZO) stock for Carrizo Oil & Gas also sank 81 cents so far.  Be careful on that one as well!!  I think while oil price continues to fall, it partially may have some kind of connection to those stocks falling in their prices.  Pretty sure that’s what’s depressing those stocks — crude oil price plunging AGAIN.

I did see an article from Yahoo about a “new investigation” into the acquisition, but pointed at the Carrizo Oil & Gas, Inc. company that read in part :

”Rigrodsky & Long, P.A. announces that it is investigating potential legal claims against the board of directors of Carrizo Oil & Gas, Inc. (“Carrizo” or the “Company”) (NASDAQ GS: CRZO) regarding possible breaches of fiduciary duties and other violations of law related to the Company’s entry into an agreement to be acquired by Callon Petroleum Company (“Callon”) (NYSE: CPE) in a transaction valued at approximately $3.2 billion. Under the terms of the agreement, shareholders of Carrizo will receive 2.05 shares of Callon for each share of Carrizo common stock. Following the closing of the transaction, Callon shareholders will own approximately 54% of the combined company and Carrizo shareholders will own approximately 46%.”

These circumstances might have a bearing on those companies’ stock prices even more so.

Edited July 17, 2019 by David Zernhelt

[Jan van Eck + 7,558]

My (quite uninformed) guess here is that there are problems with the valuation process used in this acquisition, which has so far not closed, and probably will not until October or November.  This is an all-stock swap, and so the question is:  did the Board of Directors of the acquiring Company, Callon, give away too much of its own stock in exchange for the lesser-valued  Carrizo?  If it did, and the market is apparently telling us it  did, then the shareholders of Calllon will suffer equity dilution.  Hence, the market rejects the deal as proposed and the stock value falls. 

You see this in these M&A efforts where the desire to grow much larger through an acquisition causes the acquiring Board to pay too much for the target company.  The Board thinks it will achieve "synergies" that will lead to reduced costs, and thus the combined company will be magically worth more.  Sometimes this fails spectacularly, as in the case where General Electric acquired the power division of Alstom (France), and paid top dollar.  GE stock slumped so badly it is down in the single-digits, a classic example of the Board being led by a wild-eyed CEO and ends up doing dumb things.