Today, Exxon Mobil Corporation (XOM) announced that it plans to acquire XTO Energy Inc. (XTO) for about $31 billion in stock plus another $10 debt in assuming XTO's debt obligations.
IRVING, Texas--(BUSINESS WIRE)--Exxon Mobil Corporation (NYSE: XOM) and XTO Energy Inc. announced today an all-stock transaction valued at $41 billion. The agreement, which is subject to XTO stockholder approval and regulatory clearance, will enhance ExxonMobil's position in the development of unconventional natural gas and oil resources.
Under the terms of the agreement, approved by the boards of directors of both companies, ExxonMobil has agreed to issue 0.7098 common shares for each common share of XTO. This represents a 25 percent premium to XTO stockholders. The transaction value includes $10 billion of existing XTO debt and is based on the closing share prices of ExxonMobil and XTO on December 11, 2009.
Although I have a net long position in ExxonMobil that decreased in value with ExxonMobil's share price falling $3.14 from $72.83 on Friday to $69.69 at today's close, I am positive on ExxonMobil's takeover of XTO. I believe that with natural gas prices near their lows, now is an opportune time to acquire natural gas companies. Moreover, XTO's core positions are in unconventional natural gas plays located in Texas, Louisiana, Arkansas, Oklahoma and Pennsylvania. XTO's skills and knowledge on how to develop these resources will be helpful to ExxonMobil, because it has other unconventional natural gas plays, including foreign opportunities in British Columbia, Poland, Germany, and Argentina. A good summary document that explains the benefits is ExxonMobil's investor presentation (PDF, 174 kb).
Please note that you can click through the chart to see a full sized image.
One comment that I heard from Tim Seymour on today's CNBC Fast Money (see the below embedded video between the four and five minute marks) is that ExxonMobil must believe that its stock is overpriced since it used an all stock deal. From having listened to ExxonMobil's earlier conference call, I believe Seymour's assertion is false. XTO wanted an all stock deal because it would be tax free to XTO shareholders. Had ExxonMobil used cash, then XTO shareholders would be deemed to have sold their shares. By having an all stock deal, XTO shareholders can decide for themselves if they want to sell their shares and pay taxes now or hold ExxonMobil's stock for further appreciation in the future. If an executive of XTO has a large number of XTO shares and believes that XOM's share are inexpensive, then she might prefer to hold the ExxonMobil stock rather than incurring capital gains tax. As far as ExxonMobil is concerned, it can continue to buy its own shares back. Regardless of which path chosen, it would have continued to use its surplus cash for repurchasing shares.
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Despite losing today, I am positive on the overall transaction. I believe that XTO and ExxonMobil shareholders will benefit from the transaction. XTO brings substantial physical resources and skilled employees with specialized knowledge while ExxonMobil has financial strength, global scale, and exceptional development and management processes. Brought together, they can find and develop more profitable opportunities.
I used today's lower stock price to increase my net long position.
Disclosure: I am long Exxon Mobil stock as well as long and short puts for an overall net long position.
On Saturday, 18 July 2009, I photographed North Glenmore Park in Calgary Alberta. If you click on my Flickr profile link, you will be taken to Flickr where you can see more of my pictures.
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