If Devon Energy Corp. and Mitchell Energy & Development Corp. have to amend their merger agreement, they may create a new holding company to ensure that the transaction remains tax-free for Mitchell shareholders. The proposed change to the merger agreement was announced Wednesday (see Daily GPI, Sept. 27). Under the existing agreement, Mitchell would merge with a subsidiary of Devon in a tax-free transaction to the extent that Mitchell’s shareholders would receive cash. Because of the decline in Devon’s stock price in recent weeks, the original agreement created doubt as to whether those opinions could be obtained at closing. An amended agreement would require both parties to complete the transaction as structured if the tax opinions are available, but in the event that the opinions are not available, the parties would create a new holding company with Devon and Mitchell the subsidiaries. By doing this, Devon’s shareholders would exchange each of their Devon shares for one share of the new holding company and Mitchell shareholders would exchange their shares for .585 shares of the new company and $31 in cash. The new holding company, which would keep the transaction tax-free except for the cash paid to Mitchell shareholders, would include Devon’s current board of directors along with Todd Mitchell, the son of Mitchell CEO George Mitchell.

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