By: Emily Patsy – Hart Energy – Continental Resources Inc. received a $4.4 billion cash “take private” proposal from its founder Harold G. Hamm, the shale producer unveiled in a company release on June 14.
“Continental cautions its shareholders and others considering trading in Continental’s securities that Continental has only recently received the Hamm Family’s proposal and has not had an opportunity to carefully review and evaluate the proposal or make any decision with respect to Continental’s response to the proposal,” the company said in the release.
Continental received a non-binding proposal letter dated June 13 from Hamm, on behalf of his family’s trusts, to acquire all remaining outstanding shares of Continental common stock for $70 per share in cash, valuing the company at $25.41 billion.
An industry icon who helped lead the charge to lift America’s 40-year-old ban on U.S. crude oil exports, Hamm founded Continental Resources in 1967 at the age of 21. Since then, the company has grown into one of the top 10 oil producers in the U.S. Lower 48.
Hamm currently serves as chairman of the Oklahoma City-based company, which he took public in 2007. In his letter, Hamm said the public market, at the time, rewarded companies for both growth and performance.
“Times have changed in the public market, particularly since the COVID pandemic. The market response has not been there for the oil and gas industry,” wrote Hamm noting the dwindling number of public E&P companies.
“This diminishing number of public entities is illustrative of a lack of support from the public market, and we believe there is a resulting under-appreciation of Continental,” he added.
Analysts with Tudor, Pickering, Holt & Co., which estimate the $70 per share cash offer implies a roughly 9% premium to the June 13 close and an 11% premium to its volume-weighted average price during the last 30 trading days, were surprised by the move.
“Announcement is somewhat of a surprise given prior messaging of wanting to be a public company given access to capital markets, but seems like a reasonable deal given our current price target of $77/shr,” the TPH analysts wrote in a June 14 research note.
Hamm, the Harold G. Hamm Trust and certain trusts established for the benefit of Hamm’s family members collectively holds approximately 83% of the total outstanding shares of Continental common stock. The remaining 17.4% interest, or roughly 63.3 million shares, is worth around $4.4 billion at the take-private proposal, according to Gabriele Sorbara, managing director of equity research at Siebert Williams Shank & Co. LLC.
“In addition, CLR had $5.56 billion of net debt at the end of 1Q22,” Sorbara wrote in a June 14 research note. “We would not expect an issue with funding this potential deal, especially considering the tremendous level of free cash flow expected in the coming years.”
Sorbara estimates that, using the firm’s below-strip price deck, Continental will generate over $3 billion of free cash flow for the remainder of the year and about $2.9 billion in 2023.
“On the valuation side, the deal is valued at 3.8x 2023 EV/EBITDA, right in line with its peer group,” he added.
Continental said that its board intends to establish a special committee consisting of independent directors of the board to consider the proposal. The board expects that the special committee will retain independent advisers, including independent financial and legal advisers, to assist it in this process.
Continental has engaged Intrepid Partners LLC to assist the company as its financial adviser and Vinson & Elkins LLP as legal adviser for the proposed transaction.
The proposal from Hamm constitutes only an indication of interest by the Hamm Family and does not constitute a binding commitment with respect to the proposed transaction or any other transaction, Continental said in its release. No agreement, arrangement or understanding between Continental and the Hamm Family relating to any proposed transaction will be created unless definitive documentation is executed and delivered by the Hamm Family, Continental, and all other appropriate parties, it reiterated.
Continental is the largest leaseholder and the largest producer in the nation’s premier oil field, the Bakken play of North Dakota and Montana, according to the release. Continental also proclaims to be the largest producer in the Anadarko Basin of Oklahoma. Additionally, the company has newly acquired positions in the Powder River Basin of Wyoming and Permian Basin of West Texas.
Hamm noted in his letter that positioning itself as a private company will allow Continental to take maximum advantage of its “heritage as one of the leading exploration companies in the world,” which he described as the company’s greatest strength.
“We have determined that the opportunity today is with private companies who have the freedom to operate and aren’t limited by public markets, similar to the way that we operated approximately 15 years ago, prior to becoming a public entity,” he wrote.
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