A shareholder of Marathon Oil has initiated legal action to halt the previously announced $22.5bn acquisition of the American oil and gas company by ConocoPhillips.
The shareholder, Martin Siegel, contends that the transaction undervalues Marathon Oil significantly, reported Bloomberg.
In the lawsuit, Siegel argues that the deal could result in a loss of more than $6bn in value for Marathon Oil investors. He further alleges that Marathon Oil, its directors, and financial adviser Morgan Stanley provided misleading information in a proxy statement that encouraged shareholders to support the deal.
Siegel also claims that Marathon Oil’s management and advisers have a conflict of interest due to their financial stakes in the completion of the acquisition. He asserts that Marathon Oil’s CEO could benefit from stock grants valued at over $70m, while Morgan Stanley stands to earn $42m in fees if the transaction proceeds.
The acquisition, structured as an all-stock deal, was announced in late May 2024. Marathon Oil’s valuation includes the assumption of $5.4bn in net debt.
Marathon Oil, which is listed on the New York Stock Exchange (NYSE), operates in several prolific regions, including the Eagle Ford in Texas, Bakken in North Dakota, Permian in New Mexico and Texas, and STACK and SCOOP in Oklahoma. The company also has an integrated gas business in Equatorial Guinea.
ConocoPhillips, meanwhile, had operations across 13 countries as of 31 March 2024, with total assets valued at $95bn and a workforce of nearly 10,000 employees.
Also listed on the NYSE, ConocoPhillips expects the acquisition to immediately enhance its earnings, cash flow from operations, free cash flow, and return of capital per share for its shareholders. The company expects to realise $500m in synergies related to costs and capital within the first year following the completion of the deal.
The acquisition is also expected to strengthen ConocoPhillips’ US onshore portfolio by integrating complementary acreage, adding over two billion barrels of resources with an estimated average cost of supply below $30 per barrel of West Texas Intermediate (WTI).
Under the terms of the agreement, Marathon Oil shareholders will receive 0.255 shares of ConocoPhillips common stock for each of their Marathon Oil shares. This exchange reflects a 14.7% premium over Marathon Oil’s closing share price on 28 May 2024, and a 16% premium over the previous 10-day volume-weighted average price.
The completion of the transaction is subject to approval from Marathon Oil stockholders, regulatory clearance, and the fulfilment of other customary closing conditions. The deal is expected to be finalised in Q4 2024.
Last week, Marathon Oil reported a net income of $349m, or $0.62 per diluted share, for the second quarter of 2024 (Q2 2024).
The company’s US production averaged 351,000 barrels of oil equivalent per day (boed) in the reported quarter, with oil production specifically averaging 183,000 barrels of oil per day (bopd).
The US unit production cost for the quarter averaged $6.21 per barrel of oil equivalent (boe). In Equatorial Guinea, production averaged 42,000boed, including 8,000bopd.
During the reported period, excluding joint venture wells, Marathon Oil brought 99 gross company-operated wells to sales, exceeding the guidance range of 85 to 90 wells, due to improvements in drilling and completion efficiency.
The company discontinued its share repurchase programme following the announcement of its pending merger with ConocoPhillips. Under the terms of the merger agreement, Marathon Oil is restricted from increasing its quarterly dividend beyond the current $0.11 per share.
