SandRidge responds to merger proposal
SandRidge Energy Inc. said Wednesday it is considering a merger plan proposed by Tulsa-based MidstatesPetroleum Co.
The Oklahoma City company issued a threesentence statement confirming it has received the unsolicited proposal.
“As previously disclosed, SandRidge’s independent directors are engaged in an ongoing dialogue with shareholders and are developing a plan of action in line with their commitment to acting in the best interests of all shareholders,” the company said. “The SandRidge board, in consultation with its independent financial and legal advisers, will carefully review and evaluate Midstates’ proposal, taking into account the company’s current strategic plan and stand-alone prospects.”
The statement was issued one day after Midstates publicly announced its plan to combine the two companies. Midstates CEO David Sambrooks said Tuesday he first approached SandRidge CEO James Bennett with the proposal on Jan. 18, but had not yet received an answer.
“There are significant benefits to combining Midstates and SandRidge that unlock substantial value for both companies,” Sambrooks said in a conference call with analysts on Tuesday.
Both companies have large stakes in northwest Oklahoma’s Mississippi Lime formation, a region that largely has fallen out of favor in recent years because of the large amount of water the area produces along with oil and natural gas, and because efforts to dispose of that water have been connected with the
state’s ongoing but declining earthquake swarm.
Midstates described the deal as a “friendly transaction,” but the plan calls for Sambrooks to be CEO of the combined company.
“I will be leading the combined company, and we will enlist the best-ofthe-best approach to filling out the remaining executive positions,” Sambrooks said. “We will seek input of shareholders for the composition of the board.”
Under terms of the proposal, SandRidge shareholders would own about 60 percent of the combined company, with Midstates shareholders controlling the remaining 40 percent.
Sambrooks said he already has the support of his company’s two largest shareholders: Fir Tree Partners and Avenue Capital Group. Those firms together control about 40 percent of Midstates’ shares, and Fir Tree holds an 8.3 percent stake in SandRidge.
Fir Tree in December aligned itself with activist investor Carl Icahn, who successfully led an effort to block SandRidge’s planned $746 million purchase of Colorado-based Bonanza Creek Energy.
Analysts praise proposal
Two analyst firms that follow Midstates issued notes Wednesday praising the merger proposal.
Coker Palmer Institutional said the deal “makes a lot of sense to us” and that the combined company “sports many attractive attributes, which should revalue shares over time.”
Cowen Credit Research used similar language to call the proposed merger “a marriage that makes sense.”
“The geographic overlap, synergy potential, and increased share liquidity result in compelling industrial and strategic logic, with a combined enterprise better able to generate free cash,” the Cowen analysts said in Wednesday research note.
Midstates’ Sambrooks said Tuesday the proposed merger would create$70 million in potential annual synergies, but did not elaborate on how those savings would be created. Companies typically save money following mergers by consolidating operations, often laying off employees in duplicate positions.
A Midstates spokesman said Tuesday it is premature to discuss whether there would be cuts or consolidations following the proposed merger.