Kimmeridge Energy-backed Desert Peak Minerals and publicly traded Falcon Minerals Corp. of Houston announced Wednesday, Jan. 12, that they agreed to combine in an all-stock transaction that values the entire enterprise at $1.9 billion.
Five law firms in Texas, White & Case, Latham & Watkins, Vinson & Elkins, Kirkland & Ellis and Gibson Dunn, advised the various parties.
The companies said the combination is expected to create a top mineral and royalty company with low leverage, an emphasis on shareholder returns and a big footprint in the Permian Basin and Eagle Ford. The two added that they will remain focused on consolidating high-quality mineral and royalty positions in the Permian Basin, with the increased scale helping them to do that.
At the closing, which is expected in the second quarter if it clears Falcon shareholders and regulators, Denver-based Desert Peak will become a unit of Falcon’s operating partnership. The combination will retain Falcon’s “Up-C” structure and Desert Peak’s equity holders will get 235 million shares of Class C common stock, which number will be adjusted in connection with a 1-for-4 reverse stock split.
Desert Peak’s equity holders may receive additional consideration to the extent that Desert Peak’s net debt is less than $140 million based on a $5.15 per Falcon Class A share price.
Desert Peak’s equity holders will own about 73% and Falcon shareholders will hold around 27% of the combined company, which will have an initial equity market capitalization of $1.76 billion and enterprise value of $1.92 billion. The parties claim that the transaction will accretive to Falcon shareholders on a cash flow per share basis for this year.
Blackstone, which owns 40.6% of Falcon’s voting power, agreed to vote in favor of the transaction.
Barclays is the lead financial advisor to Falcon’s transaction committee, including Jose Briceno in Houston. Houlihan Lokey, namely Robert Teigman in New York, also served the committee.
White & Case is legal counsel to the committee led by M&A partner Steven Tredennick in Houston and including partner Chang-Do Gong and associate Samantha Kobbe (M&A) in New York. Partner Laura Katherine Mann and associates Fatima Hassan Ali (capital markets) and Mary Johnson (M&A), partner Chad McCormick and associate Neil Clausen (both tax) in Houston also helped out.
Falcon general counsel Jeff Brotman led his team, hiring Latham & Watkins for outside counsel. The group was led by Houston partners Nick Dhesi and Ryan Lynch and Houston/Austin partner Bill Finnegan with associates Clayton Heery, Kate Wang, Michael Basist, Ziyad Barghouthy and Janhavi Das.
Weighing in on tax matters were Houston partners Tim Fenn and Bryant Lee along with associate Emily Fawcett; on finance matters by Houston partner Matthew Jones with associate Chris Wood; on intellectual property matters by New York partner Jeffrey Tochner with associate Sebastian Moss; and on antitrust matters by Washington, D.C., partner Jason Cruise and counsel Peter Todaro with associate Alexandra Clark.
Houston partner Joel Mack and Los Angeles counsel Josh Marnitz handled environmental matters; Houston partner Stephen Szalkowski assisted on oil and gas; and Washington, D.C., partner Adam Kestenbaum helped out on benefits and compensation.
Vinson & Elkins is the legal counsel to Desert Peak and Kimmeridge led by partners Doug McWilliams, Scott Rubinsky and Benji Barron and senior associate Sang Lee with assistance from counsel Raleigh Wolfe and associates David Smith, Nate Richards and Joseph Steuert.
Also advising were partners Jim Meyer and Ryan Carney and associate Jeff Slusher on tax; counsel Dario Mendoza and associate Brian DeShannon on executive compensation/benefits; partner Sean Becker and counsel Martin Luff on labor/employment; counsel Rajesh Patel and associate Marcus Martinez on technology transactions/IP; partner Bryan Loocke, counsel Joclynn Townsend and associate Ben Zeter on energy transactions/projects; and partner Matthew Dobbins on environmental.
Kirkland & Ellis counseled Blackstone, including M&A partners Rhett Van Syoc, Doug Bacon, Debbie Yee, David Thompson and Randy Santa Ana and capital markets partners Michael Rigdon and Atma Kabad and associate Shelby Brown.
Gibson Dunn partner Hillary Holmes advised Houlihan Lokey.
The combined company will be managed out of Denver by the Desert Peak team and led by Desert Peak CEO Christopher Conoscenti. Noam Lockshin, a partner at Kimmeridge, Desert Peak’s and the combined company’s largest equity holder, will serve as chairman of the board.
Following closing, the new board will consist of eight members who are currently expected to be Lockshin and Conoscenti as well as Erik Belz, Allen Li, Claire Harvey (chair of the Falcon board and the transaction committee), Steven Jones (also a member of the committee), Morris Clark and Alice Gould.