Houston-based Callon Petroleum Co. on Thursday went on the defense after a major shareholder slammed its planned takeover of Carrizo Oil & Gas Inc.

The Permian Basin pure-play in July said it would buy Carrizo in an all-stock deal valued at $3.2 billion. Earlier this month Paulson & Co. Inc., which holds an estimated 21.6 million shares, or 9.5% of Callon, sent a letter to the board arguing that the deal, which would add not only Permian but Eagle Ford Shale assets, was not what shareholders had bargained for.

Callon responded by posting investor materials to its website detailing what it said were the benefits of the combined company, which would enable it to “accelerate its free cash flow, capital efficiency and deleveraging goals” using a large-scale development model.

“The strategic and financial benefits of Callon’s combination with Carrizo are compelling,” said CEO Joe Gatto. “We are creating a differentiated oil and gas company with scaled development operations focused on premier asset bases and supported by accelerated cash flow and capital efficiency.

“Additionally, the pro forma company’s leading cash margins will enable us to navigate commodity price volatility and allow for reliable, continuous development of the combined portfolio. Together, we will be well positioned to accelerate our strategy and deliver significant value to our shareholders.”

Callon said the combination would create a “self-funded, high-margin oil growth company with a leading cost of supply on an all-in corporate basis. It also would add a “repeatable free cash flow generating business in the Eagle Ford Shale.”

If approved, Callon shareholders would own 54% of the combined company, with Carrizo shareholders holding the remaining stakes.

“Importantly, the Callon board evaluated and considered several alternatives for maximizing shareholder value over the past two years before entering into the Carrizo transaction,” management noted. “Moreover, the board firmly believes that the pro forma company will have improved optionality to maximize shareholder value in the context of future industry consolidation.”

As part of the integration planning process, Callon said it had refined its views regarding the scope of asset monetizations once the deal is completed.

“As a standalone company, Callon has realized cash proceeds of over $280 million from acreage divestitures and trades in 2019 and used those proceeds for debt reduction and redemption of higher cost preferred shares,” it noted.

Callon now has set a target to sell another $300-400 million for the combined company by the end of 2020, primarily from “select acreage” in the Eagle Ford, as well as pruning Permian leasehold not considered core to its strategy.

In addition, Callon said it wants to form a “joint venture or similar structure involving an expanded set of water infrastructure assets in both the Permian Basin and Eagle Ford Shale.”

Since the end of June, Callon said it also has added to its hedge portfolio. The current portfolio provides for downside protection on West Texas Intermediate and ICE Brent oil benchmark pricing for around 2.2 million bbl of volumes in 4Q2019, as well as 71 million bbl for 2020. In addition, hedges were added for oil volumes that would be priced on the Magellan East Houston pricing point beginning in 2020 for 1.4 million bbl at $2.40/bbl.