Two national law firms with offices in Houston played primary advisory roles on the latest big deal in the oil patch, the Keane Group’s merger with C&J Energy.
The transaction creates a U.S. pressure pumping giant with an enterprise value of $1.8 billion.
Kirkland & Ellis counseled C&J with a team led by transactional partners Adam Larson, Doug Bacon, Kim Hicks and Alex Rose.
The four attorneys had assistance from transactional associates Erik Shoemaker, Taylor Anthony, Chad Barton, Colin Mize, Logan Weissler, Adam Wojcik and Cameron McCollum; capital markets partner Matthew Pacey and associates Sara-Ashley Moreno, Caleb Lowery and Andrew Allen; and tax partner Mark Dundon and associates William Dong and Melanie Rosin.
Others on the team were debt finance partners William Bos and Kimberly Perdue and associates Lech Wilkiewicz, Shan Khan and Marco Chan; and environmental transactions partner Paul Tanaka and associates James Dolphin and Lindsay Dofelmier. Lawyers from the firm’s New York, Washington, D.C., and Chicago offices helped out.
Keane used Schulte Roth & Zabel as its legal advisor but Simpson Thacher & Bartlett advised the special committee of Keane’s board, including partners Christopher May and Breen Haire and associate Ana Sanchez in Houston.
Keane’s general counsel is Kevin McDonald, who has been in the post since 2016 (and was a finalist for small legal department GC of the Year in the 2019 ACC Houston Corporate Counsel Awards). C&J’s general counsel is Danielle Hunter, who also took that role in 2016.
It’s not clear who will be general counsel of the combination and the deal’s spokeswoman, Sharon Stern of Joele Frank, wouldn’t comment.
Financial advisors included Citi for Keane, Lazard for Keane’s special committee and Morgan Stanley and J.P. Morgan for C&J.
Baker Botts said it counseled Lazard on the deal, including partner Joshua Davidson and Jennifer Gasser. Vinson & Elkins partner Jeff Floyd and senior associate Benji Barron counseled Morgan Stanley.
C&J stockholders will receive 1.6149 shares of Keane common stock for each share they own in a tax-free transaction. The agreement allows C&J to pay its shareholders a cash dividend of $1 per share before closing.
The combination will be 50/50 owned by Keane and C&J shareholders. Its $1.8 billion in enterprise value includes $255 million in debt.
Analysts at Tudor, Pickering, Holt said in a note that C&J stockholders are getting a low/mid-single digit premium for their shares.
“No hefty premium paid here, but $100mm [million] in synergies are being targeted,” the firm said.
Simmons Energy analyst John Daniel said in a note that the transaction is the industry’s first consequential step to address a highly fragmented and, for the most part, a non-differentiated business.
“The proposed FRAC/CJ deal should be Xeroxed across all of oil service as years of capital inflows and easy access to equipment now distill into a sector with no pricing power, weak returns and a complete lack of investor interest,” he said.
The analysts at TPH said the deal will create a “muy grande” oilfield services company – and the third largest U.S. pressure pumper after Halliburton and Schlumberger – but more needs to be done to create fewer players in the market.
“Consolidation (is) certainly nice to see, but we’ll need (much) more to notably enhance pressure pumping industry structure,” they said.
The companies said the combination will create an industry-leading well completion and production services provider in the U.S. with increased scale and density across services and geographies with a prominent presence in the most active U.S. basins, including the Permian, Marcellus/Utica, Eagle Ford, Rockies/Bakken, Mid-Continent and California.
The combined company will have $4.2 billion in net revenue and $636 million in adjusted EBITDA for the 12 months ended March 31. The companies expect to achieve annualized run-rate cost synergies of $100 million within a year after closing through cuts in sales, general and administrative expenses, supply chain management and optimization of operational processes.
The parties said the combination will have $173 million in cash, or $106 million after the $1 per share cash dividend is paid to C&J shareholders, giving it the flexibility to invest in growth and technology and return capital to shareholders.
Keane CEO Robert Drummond said in a statement that the merger will result in a broader portfolio of well completion services across an even greater footprint in the U.S., benefiting the two companies’ employees, shareholders, customers, suppliers and the communities in which they operate.
“With two strong teams, enhanced and diversified operations, a strong balance sheet, ample liquidity, attractive free cash flow and a legacy of successful R&D, the combined company will be well positioned to further invest in technology and innovation,” he said.
C&J CEO and president Don Gawick said the merger underscores the highly complementary nature of the companies’ two platforms and cultures.
Together, the combined company will have 2.3 million hydraulic fracturing horsepower consisting of 50 frac fleets, 158 wireline trucks, 81 pumpdown units, 28 coiled tubing units, 139 cementing units and 364 workover rigs.
Patrick Murray, chairman of C&J’s board, will serve as chair of the combination’s board and Drummond will be president and CEO. C&J CFO Jan Kees (J.K.) van Gaalen will be executive VP and CFO and Keane president and CFO Gregory Powell will be executive VP and chief integration officer.
The combined company’s board will consist of six directors from C&J’s board, including its chairman, and six from Keane’s board, including its CEO. Its headquarters will remain in Houston. Its name and ticker symbol will be announced before the transaction’s completion, which is expected in the fourth quarter if it clears both sets of shareholders and regulators.
Keane Investor Holdings, which includes an affiliate of Cerberus Capital Management, the Keane family and Keane management, owns 49% of Keane’s shares and has agreed to vote in favor of the deal.
Keane went public in 2017, raising $584.7 million. C&J emerged from bankruptcy that same year, eliminating $1.4 billion in debt. The company struggled after its founder and CEO Joshua Comstock died unexpectedly from acute bacterial pneumonia in early 2016.