Diamondback Energy announced an agreement to acquire crude oil and natural gas exploration company QEP Resources in an all-stock deal valued at $2.2 billion. Shares of Diamondback and QEP lost 7.8% and 10%, respectively, in Monday’s pre-market trading.
The purchase consideration will consist of 0.05 shares of Diamondback (FANG) common stock for each QEP share, representing an implied value of $2.29 per share paid to each QEP stockholder based on Diamondback’s closing price on Dec. 18. QEP shares closed at $2.31 on Friday.
Diamondback, which is engaged in hydrocarbon exploration, said it expects the transaction to be accretive to 2021 per share metrics including, cash flow, free cash flow, and leverage. In addition, the company estimates that the deal will generate cost synergies of between $60 million to $80 million.
Following the deal, Diamondback shareholders will own 92.8% of the combined company, and QEP (QEP) holders will own the remaining 7.2%. The transaction has been unanimously approved by the boards of both companies and is expected to be completed by Q1 or early Q2 of 2021.
Separately, Diamondback also announced an agreement to buy the leasehold interests and related assets of Guidon Operating to be paid in 10.63 million shares of Diamondback common stock and $375 million in cash.
As a result of the two deals, Diamondback’s total leasehold interests will increase to over 276,000 net surface acres in the Midland Basin, the company said. (See FANG stock analysis on TipRanks)
Last week, RBC Capital analyst Scott Hanold reiterated a Buy rating on FANG stock with a price target of $67. This target implies that investors could be yielding a 46% gain over the coming 12 months.
Hanold expects Diamondback to post a net loss per share of $7.05 for Q420. The company recorded a net loss per share of $7.05 in Q3.
From the rest of the Street, the stock scores a Strong Buy analyst consensus based on 11 Buys, and 2 Holds. The average price target of $54.19 implies upside potential of 18.2% to current levels.
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