Centennial Resource Development Inc. (NASDAQ: CDEV) has announced a merge of equals agreement with Colgate Energy Partners III LLC. With over 180,000 net leased acres, 40,000 net royalties acres, and current total production of roughly 135,000 Boe/d, the merged business will become the biggest true E&P firm in the Delaware Region.
The merged entity intends to produce superior stockholder returns using its high-quality, scalable capital base.
Combination increases scale and enhances accretion
CEO of Centennial Sean Smith said:
This transformative combination significantly increases scale and drives accretion across all our key financial and operating metrics. Colgate’s complementary, high-margin assets are a natural fit for Centennial, creating the largest pure-play E&P company in the Delaware Basin. Importantly, the combined company is expected to provide shareholders with an accelerated capital return program through a fixed dividend coupled with a share repurchase plan.
The merged company will have a high-quality asset base with distinct inventory supporting sustainable free cash flow expansion. Equally, it positions the companies to enhance shareholder cash returns, with more than $1 billion in cash flow anticipated in 2023 based on present strip prices.
Co-CEO of Colgate Willy Hickey said:
The Colgate and Centennial teams have each demonstrated a track record of execution through the years, and we are excited to assume leadership roles in the new company to build upon that success and guide the next phase of value creation. Both companies have established strong financial and operational cultures, and we expect the combined company will be a top-tier, low-cost operator that is able to deliver better margins and shareholder returns.
The deal values Colgate at $3.9B
Colgate is valued at $3.9B following this $7B mergers of equals. The deal includes 269,300,000 Centennial shares, cash consideration of $525M, and the absorption of about $1.4B in existing net debt. Based on existing cash levels and provisional free cash flow, the firm forecasts its total debt EBITDAX rate at closure to be about 1.0x.
Cash balance and debts under an expanded credit facility are supposed to cover the cash payment and settlement of Colgate’s existing credit line debts at the close.
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