Callon Petroleum Company (CPE) and Carrizo Oil & Gas, Inc. (CRZO) announced an amendment to the existing terms of their agreement for Callon to acquire Carrizo in an all-stock transaction.
Under the amended terms, Carrizo shareholders will receive 1.75 shares of Callon common stock for each share of Carrizo common stock they own. 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.
Joe Gatto, President and Chief Executive Officer of Callon, said, "Since announcing the transaction, we have had extensive and valued dialogue with our shareholders, who have expressed support for the industrial logic and strategic merits of this transaction. In recognition of evolving investor expectations for a successful combination in the current environment, we have agreed to revised terms with Carrizo that enable value-creation opportunities for both shareholder bases."
Mr. Gatto continued, "Our strategy remains unaltered: we are creating a leading oil and gas company with a larger cash flow base to employ more efficient scaled development of our pro-forma Permian Basin position of over 100,000 net acres. With increased size and scale driving achievable synergies, the combined company will benefit from a leading cost of supply on an 'all-in' corporate basis and be well positioned to deliver durable free cash flow generation through commodity price volatility. The combination accelerates Callon's stated strategy to increase returns, generate free cash flow, reduce leverage, and maintain a long-term focus while also enhancing optionality in the evolving industry landscape. We will continue to work closely with Carrizo to successfully complete the transaction and deliver to our shareholders the significant benefits we believe this combination provides."
S.P. "Chip" Johnson, IV, President and Chief Executive Officer of Carrizo, commented, "We continue to be very excited to join forces with Callon and believe, in light of today's market environment, the revised terms offer compelling near- and long-term value for Carrizo shareholders. We believe that a combination with Callon creates the most value for our shareholders. Under the revised terms of the merger, Carrizo shareholders will have meaningful participation in the upside of a strong company that reflects current investor priorities, and benefits from the enhanced operational efficiencies needed to be a low-cost producer in today's dynamic pricing environment. We look forward to closing the transaction and realizing our potential as a combined company."
Additional Details about the Transaction
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 $20 million 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 $2.5 million 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 companies continue to expect to close the transaction during the fourth quarter of 2019, subject to the approval of shareholders of both companies.
Callon Special Meeting of Shareholders
In addition to the amendment to the merger agreement, Callon announced that its Board of Directors has approved the following revisions to the proposals before the Special Meeting of Shareholders:
Lowered the authorized share request in the charter amendment proposal to 525 million shares from 750 million shares. With approval of this proposal, Callon will have the lowest ratio of authorized shares relative to outstanding shares among its peer group1 upon the closing of the merger while maintaining appropriate flexibility in its capital structure.
To remove any potential for confusion or uncertainty with our shareholders, we have eliminated the double-trigger compensation that would be payable to Callon executive officers in the event of a merger-related termination of employment. As a result, the non-binding advisory vote on executive compensation will be removed from the proxy ballot for the Special Meeting of Shareholders.
Callon also announced its intention to convene and immediately adjourn the Special Meeting of Shareholders on November 14, 2019, to continue soliciting proxies from Callon shareholders. Callon intends to reconvene the Special Meeting on December 13, 2019, and readjourn until December 20, 2019, at 9:00 a.m. CT.
The Callon Board reiterates its belief that approving the Carrizo transaction is in the best interests of all Callon shareholders and urges all shareholders to vote FOR the proposals set forth in the proxy materials.
Carrizo Special Meeting of Shareholders
Carrizo announced that it will convene and immediately adjourn its Special Meeting of Shareholders on November 14, 2019, to allow Carrizo shareholders time to consider the revised terms of the merger and to allow Carrizo to solicit new proxies from Carrizo shareholders. Carrizo intends to reconvene its Special Meeting on December 20, 2019, at 9:00 a.m. CT.
The Carrizo Board recommends that Carrizo's common shareholders vote FOR the merger agreement as well as all other proposals set forth in the proxy materials.