EXCO Resources Inc. CEO Douglas Miller has proposed a buyout of the company at $20.50/share cash, the Dallas-based natural gas-focused exploration and production company said Monday. Oilman T. Boone Pickens as well as two investment firms are said to be in on the offer, which is worth $4.36 billion.

"I am pleased to express my interest in acquiring all of the outstanding shares of common stock of EXCO Resources Inc. (the company) at a cash purchase price of $20.50 per share," Miller said in a letter to the EXCO board, of which he is chairman. "I have preliminarily discussed this proposal with Oaktree Capital Management LP on behalf of its funds and accounts under management, Ares Management LLC, on behalf of one or more of its funds under management, and Boone Pickens, and each has expressed an interest in pursuing the acquisition with me."

The offer represents a 38% premium to the shares' Friday closing price of $14.83. Monday morning shares rocketed about 35% to trade near the offer price at $20.

Miller has a 2.15% stake in the company and Pickens owns 5%, while Oaktree holds about 16% and Ares Management has about 6%, according to Thomson Reuters.

Miller took the company private once before in 2003 after forming EXCO Holdings Inc. for that purpose. Cerberus Capital Management, LP backed that deal.

"Happily hit the bid is our advice," said analysts at Tudor, Pickering, Holt & Co. Securities Inc. in a note Monday. They noted that the offer is 112% of their $18.40 net asset value [NAV] estimate for the company and that it is 8.5 times their estimated enterprise value/earnings before interest, taxes, depreciation and amortization.

In an era of foundering gas prices and robust production, going private is seen by some as an attractive option. Quicksilver Resources of Fort Worth, TX, is in talks with a group of investors, including its CEO, over a deal that would take the company private (see Daily GPI, Oct. 26).

EXCO is active in East Texas and North Louisiana, particularly in the Haynesville/Bossier Shale, the Vernon and Kelleys fields and the Cotton Valley Area. It is also active in the Permian Basin in West Texas and in the Marcellus Shale in Pennsylvania and West Virginia. EXCO also has interests in midstream assets in East Texas and North Louisiana.

Earlier this year EXCO acquired East Texas assets from Southwestern Energy Co. (see Daily GPI, June 17). This followed deals with partner BG Group plc to acquire assets of Common Resources LLC in the Haynesville/Bossier (see Daily GPI, April 22). BG and EXCO are also partners in the Marcellus (see Daily GPI, May 11).

"...[O]ur after-tax NAV estimates the bid assumes a long-term gas price of $7/Mcf. That said, we view the buyout as somewhat opportunistic given the stock's underperformance (down 30% year to date pre-bid -- was $22.22 on Jan. 4, 2010) and current gas prices, as well as EXCO's being set to generate production growth of 36% [compound annual growth rate]..." analysts at BMO Capital Markets Corp. said in a note Monday.

"...[W]e can't argue for a higher valuation given our outlook for gas. We don't see BG as a competing buyer as we don't believe it would want to be operator of the [joint ventures] and it already has a 50% share."

Shortly after the offer's announcement, law firm Goldfarb Branham LLP said it was looking into the offer and alleged that shareholders could be shortchanged. Several other law firms said they were scrutinizing the offer on behalf of shareholders.

"Mr. Miller currently owns approximately 2.15% of EXCO's shares and he has engaged in discussions with other significant shareholders that own about 27.5% of EXCO's shares to participate with him in an acquisition of EXCO. The price appears to be unfair because at least one analyst has projected that EXCO's true value is at least $29 per share," said securities lawyer Hamilton Lindley.

Miller said in his letter to the board that he would continue as chairman and CEO following any deal and would plan to keep the EXCO senior management team in place. "I anticipate continuing to run the business in accordance with our current practice and maintaining the company's valuable employee base, which we view as one of its most important assets," he said.

"I would expect to reinvest a significant portion of my equity ownership as part of this transaction. The remaining funds necessary to consummate the transaction would come from senior management, outside investment partners and, as needed, third-party debt financing."

EXCO said its board would establish a committee of independent directors to consider the proposal.

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