Calling QEP Resources Inc. "deeply undervalued," two affiliates of activist shareholder Elliott Management Corp., one of the company's largest shareholders, offered to buy the onshore exploration and production company outright and take it private in a cash deal valued at more than $2 billion.
In a three-page letter to QEP's board on Monday, Elliott Associates LP and Elliott International LP proposed acquiring the company for $8.75/share, a 44% premium over last Friday's closing price. The stock was trading at $8.54 at noon on Monday. Elliott said the proposal was contingent upon QEP completing the sale of its Haynesville Shale assets but not a separate divestiture of its Williston Basin assets. Both sales, which would make QEP a Permian pure play, were announced in November.
"We believe the quality of QEP's assets demonstrates a clear focus on only core of the core positions in premium basins," wrote Elliott portfolio managers John Pike and Andrew Taylor. "But despite the promise of its premium assets, QEP as a public company investment has not worked, and its stock continues to trade well below its intrinsic value.
"We believe that a sale of the company pursuant to the proposal gives shareholders a direct path to realizing a compelling premium for their shares with far greater certainty than if QEP were to remain a publicly traded company."
Elliott, which first approached QEP early last year, proposed that the board "hire well regarded advisers and form a strategic review committee" to analyze its takeover bid. It also encouraged the board to open a data room for the Permian assets.
Raymond James & Associates analysts valued the transaction at about $2.1 billion, while Williams Capital Group LP pegged the deal at around $2.5 billion, assuming net debt pro forma from the sale of the Haynesville and Williston assets. Raymond James said Elliott currently owns about 5% of QEP's outstanding shares.
"While its bid offers a healthy exit opportunity for current investors, Elliott's letter to the board is clearly a preliminary step in the negotiation process," Raymond James analysts said in a note to clients Monday. Separately, Williams Capital senior equity analyst Gabriele Sorbara was in agreement with Elliott's contention that QEP holds "significant value and upside," as well as "the view that a competing bid would be challenging in the current commodity price environment."
Vantage Energy Acquisition Corp. has agreed to purchase all of QEP's Williston assets in Montana and North Dakota for up to $1.725 billion. Meanwhile, Aethon Energy has agreed to buy QEP's assets in northwestern Louisiana that are prospective for the Haynesville and Cotton Valley formations for $735 million. The Aethon deal is expected to close this month, while the Vantage deal is set to close by mid-2019.