Midland oil and gas explorers and producers Diamondback Energy Inc. and Endeavor Energy Resources announced Feb. 12 that they agreed to merge in a transaction valued at $26 billion, including Endeavor’s net debt, creating a premier Permian independent operator.
It is the fifth billion-dollar energy transaction, and the largest so far this year in a list that includes BlackRock/Global Infrastructure Partners ($12 billion) and Chesapeake/Southwestern ($7.4 billion), according to the Texas Lawbook‘s Corporate Deal Tracker.
A transaction involving Endeavor was expected, with Reuters reporting Dec. 8 that the largest privately held Permian producer may come up for sale in 2024 for as much as $30 billion, with its 85-year-old founder Autry Stephens hiring bankers to advise it.
The purchase will consist of about 117.3 million shares of Diamondback common stock and $8 billion of cash, which is expected to be funded with cash on hand, borrowings under Diamondback’s credit facility and/or proceeds from term loans and senior notes offerings.
The deal is expected to close in the fourth quarter. Diamondback’s existing stockholders are anticipated to own around 60.5 percent of the combined company and Endeavor’s equity holders the balance.
Piper Sandler analyst Mark Lear wrote in a note that he expected Diamondback to be acquisitive. “While we thought CrownQuest was the one that got away [it agreed to acquired by Occidental Petroleum in December], it was only because we thought Endeavor’s size, as well as desire to sell, put it out of reach,” he said. TPH’s Jeoffrey Lambujon wrote the deal solidified Diamondback position as a “must-own” Permian pure play.
Diamondback hired Jefferies as financial advisor and Citi as M&A and capital markets advisor. Citi provided committed bridge financing as well as leading the term loan issuances and senior notes offerings. Wachtell, Lipton, Rosen & Katz is Diamondback’s legal advisor with a team led by partners Steven Green, Zachary Podolsky and Leo Strine.
Endeavor used J.P. Morgan Securities as financial advisor and Goldman Sachs & Co. provided corporate advisory services with Paul, Weiss, Rifkind, Wharton & Garrison and Vinson & Elkins as legal advisors.
The Paul Weiss team was led by partners Krishna Veeraraghavan, Benjamin Goodchild and Alexia Yang while the V&E team was led by partners Doug McWilliams, Bryan Loocke and Jackson O’Maley with assistance from senior associate Michael Zarcaro and associates Matt Fiorillo, Josh Rutenberg and Ronnie Braxton.
Others in the group included senior associates Alex Lewis and Jordan Fossee (corporate); counsel Megan Menniti and associates Sebastian Devora and Vestita Zumot (energy transactions/projects); partners David D’Alessandro and Patricia Adams, counsel Regina Ibarra, senior associate Mary Daniel Morgan and associate Cassandra Zárate (executive compensation/benefits); counsel Alex Bluebond and associate Ashley Plunk (employment/labor); partner Matt Dobbins and associate Kelly Rondinelli (environmental); and partner Damien Lyster and associate Reagan Lutter (energy regulatory).
Skadden partner Ann Beth Stebbins advised Jefferies from New York.
Travis Stice, chairman and CEO of Diamondback, said in a press release the combined company’s inventory will have industry-leading depth and quality that will be converted into cash flow with the industry’s lowest cost structure, creating a differentiated value proposition for its stockholders.
“This combination meets all the required criteria for a successful combination: sound industrial logic with tangible synergies, improved combined capital allocation and significant near and long-term financial accretion,” he said. “With this combination, Diamondback not only gets bigger, it gets better.”
Stephens founded Endeavor in 1979 and reportedly considered selling out to one of major oil companies, which include Chevron, Exxon Mobil, ConocoPhillips and Royal Dutch Shell, or going public so long as the family could keep control of the company.
The deal is expected to be 10 percent accretive to free cash flow per share in 2025, with Diamondback in the meantime reducing its shareholder payout framework to 50 percent from 75 percent to accelerate debt reduction, TPH said. Diamondback expects synergies to reach $550 million.
The Endeavor stockholder group has signed lockup restrictions for up to 18 month. Diamondback’s board will expand from 9 to 13 directors.