Barrett Rebuffs Shell's $2.2 Billion Takeover Bid
Barrett Resources wasn't quite ready to circle the wagons on
Friday to fight off a hostile takeover bid by Royal Dutch Shell
Group, but did give Shell the cold shoulder. Barrett said it would
begin an open bidding process to consider proposals from "a number
of qualified parties, rather than commencing negotiations solely
with Shell under artificial deadlines that only serve Shell's
Shell last week launched the bid in an effort to increase its
natural gas presence and gain a foothold in the second largest
natural gas basin of North American. Shell offered $2.2 billion in
cash and assumed debt but showed a willingness to shift to a
hostile takeover if needed.
When the offer was formally announced on Wednesday, Shell
Exploration and Production Co. CEO Walter van de Vijver said that
he was "hopeful that the Barrett board will respond favorably" to
the offer to pay Barrett $55 a share, or $1.8 billion. Shell also
would assume Barrett's $400 million debt. The offer was 24% more
than the independent's stock price of $44.25 on Feb. 28. However,
following Shell's formal offer, Barrett's stock skyrocketed nearly
34% finally closing Wednesday at $61.11. It had closed on Tuesday
If Barrett rejects Shell's offer, van de Vijver said, "Shell
intends to commence a fully funded, all cash tender offer for all
outstanding Barrett shares." He said the company would wait for an
affirmative answer only through Friday.
Thursday evening, Barrett made it clear that it would consider
its strategic alternatives at its own pace and under its own terms.
"We are inviting Shell to participate in this process," said
Barrett CEO Peter A. Dea. "If Shell attempts to bypass this orderly
process designed to maximize shareholder value, the board will
consider that action in due course. In the meantime, the board
urges shareholders to take no action with respect to their holdings
of the company."
Barrett noted that Shell's proposal was based on publicly
available information without the benefit of any due diligence with
the company. Barrett believes that, in properly valuing the
company, Shell and other potential parties would find it highly
important to consider confidential, nonpublic information regarding
the company's focused natural gas potential in the Rocky Mountain
region. Barrett said its management and advisors would assemble
materials to be shared with qualified parties. Participants will be
given access to a data room and provided with other detailed due
diligence information. Final proposals will be requested by Barrett
after the participants have had an opportunity to conduct their due
diligence. Barrett reiterated that it reserves the right to modify
the process at any time.
The acquisition would give Shell an "immediate material presence
in the Rocky Mountain region," said van de Vijver. Barrett's gas
and oil properties are primarily in the Rocky Mountain regions of
Colorado, Wyoming and Utah, the mid-continent region of Kansas,
Oklahoma, New Mexico and Texas, and the Gulf of Mexico region
offshore Texas and Louisiana.
Shell is more than 100 times larger than Barrett in market
value, but analysts said Shell probably would go higher if its
first offer is rejected. Barrett apparently was approached by Shell
informally two weeks ago. Van de Vijver said he had spoken to
Barrett CEO Peter Dea three times and said the discussions had been
"friendly." Barrett did not confirm the discussions.
Barrett could use Delaware laws, where it is incorporated, as a
poison pill defense. Like other U.S. companies, the company's
statutes enable it to issue a huge amount of shares if a hostile
bidder makes a tender offer. However, Shell said it would use
Delaware laws to protect itself and mount its bid because under the
state's laws a process called "action by written consent" is
allowed where a bidder gaining a majority of shares may take
management control of its target. The action would thus bypass the
In its year-end report two weeks ago, Barrett said its 2000 net
income had more than tripled to $68.1 million from $20 million in
2000. Earnings per share were $2.04, and average daily gas output
was 307 MMcf. Natural gas accounted for 96% of its production last
year on an energy equivalent basis with the rest in crude oil.
Dea said Barrett's 2000 growth was "strengthened by commodity
prices," and credited the operations team with a "commendable year
with double digit gas production growth by drilling 1,227 wells
while maintaining a favorable cost structure." He said Barrett's
long-term growth was strengthened significantly, pointing to the
new core development area in the Raton Basin.
Last year Barrett added to its net drilling inventory in the
Piceance Basin with 20-acre spacing approval and a niche
acquisition; increased its net leasehold in the Powder River Basin
coalbed methane play to 468,000 net acres; and generated several
high potential exploration projects. The Piceance, Powder River and
Wind River basin properties accounted for 32%, 21% and 18% of total
production, respectively last year. It also achieved a 21% increase
in reserves with year-end proved reserves at 1,372 Bcfe, with 1,323
Bcf and 8.1 MMbbl. It added 356 Bcfe of proved reserves in 2000,
replacing 302% of 2000 production of 118 Bcfe.
"The Rocky Mountain region, the focus of the company's gas
exploration and development activity, represents 88% of the
company's proved reserves, an increase from 81% reported in 1999,"
it said in its year-end statement. "Barrett's portfolio of high
quality development, exploitation and exploration projects will
continue our long-term growth."
Moody's Investors Service's Robert N. McCreary and Andrew Oram
placed Barrett's debt, Ba 1 rated $150 million of 7.55% senior
unsecured notes, under review for a possible upgrade because of
Shell's offer. Moody's said its review is not triggered by the
review of Barrett's 2000 results and outlook.
"It is a vote of confidence in North American natural gas price
fundamentals, Rocky Mountain natural gas price and prospectivity
fundamentals generally, and prospectivity of Barrett's reserve and
prospect base in particular," they said of the offer. "Barrett's
growth prospects increasingly center on very promising but
comparatively more price and unit cost sensitive major coalbed
methane properties in the Powder River Basin, in particular, and in
the Raton Basin."
Carolyn Davis, Houston