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Whitecap Resources and Veren (VRN, Financials) announced plans to merge in an all-stock transaction valued at approximately $15 billion, including net debt. Shares of Veren surged 16.1% to close at $5.70 on Monday before slipping 2.4% to $5.56 in after-hours trading.
Expected to conclude by May 30, the agreement would generate one of Canada's biggest light oil and condensate producers, heavily present in the Alberta Montney and Duvernay deposits.
Under the arrangement, one Whitecap share will be awarded to every Veren share owner. Under the Whitecap moniker, the merged firm will run under Whitecap's present management team. Whitecap's board will include four Veren directorsincluding President and CEO Craig Bryksa.
With 63% of the output comprised of liquid hydrocarbons, the merger is expected to produce 370,000 barrels of oil equivalent day. Having 1.5 million acres in Alberta, the organization is the biggest landholder in the Alberta Montney and a major participant in Saskatchewan's light oil market.
Notwithstanding expected synergies, Whitecap projects the purchase will be immediately accretive to its funds flow per share by 10% and free funds flow per share by 26%. Through operational, capital, and organizational efficiency, the combination is estimated to provide annual cost savings of more than $200 million.
From Morningstar DBRS, Whitecap and Veren both retain a BBB (poor) credit grade with a steady outlook. With an initial net debt-to-funds flow ratio of 0.9 times, the merged business is forecast to have by year-end 2026 a 0.8 times ratio.
Whitecap has obtained funding pledges ranging from $500 million to $2.5 billion, therefore strengthening its credit capacity. The combined available credit is $3.5 billion thanks to further obligations of $1 billion from many lenders.
With Whitecap keeping its yearly dividend of $0.73 per sharea rise of 67% for Veren ownersthe combination is positioned to improve shareholder returns. Based on projections about commodities prices of $70 per barrel for West Texas Intermediate petroleum and C$2.00 per gigajoule for AECO natural gas, the merged firm is estimated to produce $3.8 billion in yearly cash flow.
At special meetings set for May 6, the agreement calls for approval from at least two-thirds of Veren's shareholders as well as most of Whitecap's. Regulatory clearanceincluding from the Toronto Stock Exchange and the Court of King's Bench of Albertaalso is needed for the deal.
The board of Whitecap has recommended, unanimously, shareholder approval. Citing strategic advantages and financial strength, Veren's independent special committee also endorses the purchase.