Chesapeake Energy Corporation
CHK
entered an agreement with
Vine Energy Inc.
VEI
to acquire the latter for its natural gas properties in the stacked Haynesville and Mid-Bossier shale plays in Louisiana. The acquisition is a zero premium transaction, which is valued at $2.2 billion.
Per the terms of the deal, Chesapeake will pay 0.2486 shares and $1.2 in cash for each share of Vine common stock, which implies a per-share value of $15.
The deal, which is subject to customary closing conditions, is expected to complete in the fourth quarter of 2021. Following the deal closure, Chesapeake shareholders will own nearly 86% of the fully diluted shares of the combined company, while Vine shareholders will own the rest.
In 2020, Chesapeake went bankrupt after years of overspending on acquisitions, which led to an enormous debt burden. Subsequent to its emergence from Chapter 11 bankruptcy, the company was uniquely placed to engage in mergers and acquisitions to rebuild its stock momentum.
The transaction will increase Chesapeake’s cumulative five-year free cash flow outlook by $1.5-$6 billion. Moreover, it is expected to generate average annual savings of $50 million from operating and capital synergies.
Once the deal closes, Chesapeake expects to increase its base dividend by 27% to $1.75 per share due to the significant generation of free cash flow from the transaction. Beside this, the company announced the formation of a variable return program to deliver 50% of the previous quarter’s free cash flow to investors in cash, payable the following quarter and beginning with results from fourth-quarter 2021.
With the agreement, Chesapeake has the scope and skills to become a leading provider of responsibly sourced gas to premium markets in the Gulf Coast and elsewhere. The deal strengthens the company’s post-reorganization focus on natural gas and will more than double its gas output from the Haynesville shale field in Louisiana.
Company Profile
Headquartered in Oklahoma City, OK, Chesapeake’s operations are focused on discovering and developing its large and geographically diverse resource base of unconventional oil and natural gas assets onshore in the United States.
Zacks Rank & Other Stocks to Consider
Chesapeake currently flaunts a Zack Rank #1 (Strong Buy).
Some other top-ranked players in the energy space are
Eni SPA
E
, currently sporting a Zacks Rank #1, and
Phillips 66 Partners LP
PSXP
, carrying a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
Eni’s earnings for 2021 are expected to increase 26.1% year over year.
Phillips 66’s earnings for 2021 are expected to rise 51.6% year over year.
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