Due to spiraling commodity prices, which have led to a drop in Devon Energy Corp.’s stock price, Devon and Mitchell Energy & Development Corp. said Friday that the board of directors of each company has amended their merger agreement to address certain risks posed by Devon’s falling stock price. The amendment would provide for an alternate structure to mitigate the risks in the event the stock price would prevent the issuance of certain tax opinions, which are a condition to the merger transaction.

The companies reported that this new amendment will have no effect on the economics of the transaction to the companies or their shareholders. Under the original merger agreement inked back in mid August, Mitchell was to merge with a Devon subsidiary. Oklahoma City, OK-based Devon reported it would acquire Mitchell for $3.1 billion in cash and stock, making it the second largest independent natural gas producer in the United States after Anadarko Petroleum Corp (see Daily GPI, Aug. 15).

The transaction was designed to be tax-free, except to the extent that Mitchell’s shareholders receive cash. As a result, the companies imposed a condition to closing that each party receive tax opinions to that effect. As Devon’s stock price has recently declined, the companies said some doubt has been created as to whether those opinions could be obtained at closing, if the original structure were used.

Under the amended agreement, if the tax opinions are still available, then the parties would complete the transaction as it was originally structured. However, if the opinions are not available under the original structure, the parties would complete the transaction using an alternate structure that would require creation of a new holding company.

The companies said that through mergers, Devon and Mitchell would become subsidiaries of the new holding company. In those mergers, Devon’s shareholders would exchange each of their Devon shares for one share of the new holding company. Mitchell’s shareholders would exchange each of their Mitchell shares for .585 of a share of the new holding company and $31 in cash. Devon and Mitchell said using the alternate structure would eliminate the risk that a decline in Devon’s stock price would prevent the desired tax treatment.

The companies said the amended merger agreement will be filed and circulated to shareholders of Devon and Mitchell prior to the shareholder meetings. These meetings will be scheduled after completion of the necessary Securities and Exchange Commission review process. The companies said they expect to close the merger during the fourth quarter of 2001.

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