Nasdaq-listed Chesapeake Energy has signed an all-stock merger deal worth $7.4bn with US-based natural gas and natural gas liquids producer Southwestern Energy.
Based on Chesapeake Energy’s closing price on 10 January 2024, the deal is valued at $6.69 per share.
As per the terms of the deal, shareholders of the New York Stock Exchange (NYSE) listed Southwestern Energy will exchange each of their shares in the company for 0.0867 shares of Chesapeake Energy’s common stock.
Based on the specified exchange ratio and the corresponding share prices as of 10 January 2024, the resultant enterprise value for the merged company is estimated to be around $24bn.
Post-merger, Chesapeake Energy’s shareholders are anticipated to own approximately 60% ownership of the enlarged entity. The remaining stake of around 40% will be held by Southwestern Energy.
Southwestern Energy’s assets are concentrated across more than 938,000 net acres in the Appalachia and Haynesville Basins.
For the year ended 31 December 2022, the company’s production was 1,733 billion cubic feet equivalent (Bcfe). Its proved reserves at year-end 2022 were 21.6 trillion cubic feet equivalent (Tcfe).
Chesapeake Energy, which emerged from bankruptcy in 2021, has been divesting its oil-producing assets to focus on natural gas.
Southwestern Energy president and CEO Bill Way said: “Together, Southwestern and Chesapeake can drive improved margins and returns from our highly complementary portfolios through enhanced scale, capital allocation flexibility, and access to premium markets to supply growing global natural gas demand.
“Most importantly, both sets of shareholders are able to participate in the substantial value creation and future growth opportunities of the combined company, with one of the top shareholder return frameworks in the sector.”
At closing, the enlarged company will operate under a new name. Its natural gas portfolio includes extensive acreage in Appalachia and Haynesville with a current net production of around 7.9 billion cubic feet equivalent per day (Bcfe/d).
The combined entity will hold over 5,000 gross locations, providing an inventory that can sustain operations for a period of 15 years.
Chesapeake Energy president and CEO Nick Dell’Osso said: “This powerful combination redefines the natural gas producer, forming the first U.S. based independent that can truly compete on an international scale.
“The union creates a deep inventory of advantaged assets adjacent to high demand markets, allowing for the application of proven operational practices and the power of an Investment Grade quality balance sheet to drive significant synergies benefiting energy consumers and shareholders alike.”
The deal has received approval from the boards of directors of both entities.
Its closing is contingent upon approvals from shareholders of both firms as well as regulatory clearances among other conditions. The anticipated timeframe for the completion of the transaction is Q2 2024.
For Chesapeake Energy, the lead financial adviser for the deal is Evercore, with J.P. Morgan Securities providing financial advice. Legal counsel is being provided by Latham & Watkins and Wachtell, Lipton, Rosen & Katz, while DrivePath Advisors is serving as the communications adviser.
Additionally, Morgan Stanley is offering advisory services to Chesapeake Energy.
For Southwestern Energy, the lead financial adviser for the deal is Goldman Sachs & Co. Legal guidance is being provided by Kirkland & Ellis and communications advice is being handled by Joele Frank.
