Continental Resources Inc. agreed to be purchased by its founder, Harold G. Hamm, in a $4.3 billion cash deal that would take the U.S. shale giant private.
On October 17 Continental, based in Oklahoma City, concluded an agreement to be acquired by Omega Acquisition Inc., an entity owned by Hamm, for $74.28 per share. The offer price denotes a 15% premium to the closing price on June 13 — the day before Hamm's family revealed their initial $70 per share proposal.
Being an industry icon who helped lead the charge to lift America's 40-year-old ban on U.S. crude oil exports, Hamm had managed to establish Continental Resources in 1967. Since then, the company has evolved into one of the top 10 oil producers in the U.S.
However, Continental became public in 2007, as the public market rewarded companies for both growth and performance, according to Harold G. Hamm.
Throughout a long time, the public market has changed, especially since the COVID pandemic. Hamm is convinced that the market response has not been there for the oil and gas industry, noting the decreasing number of public E&P companies.
David Deckelbaum, managing director, and senior analyst at Cowen agreed with Hamm's view that Continental is not obliged to be supported by capital markets, given its healthy free cash flow (FCF) yield and a leverage-neutral profile in 2023 and even taking into account plans to partially finance the transaction through a new term loan facility.
Even with the proposed incremental leverage from the buyout, CLR would be almost 0.6x leveraged in 2023, and expected FCF, even before assuming reduced costs from going private (else dividend), would have the term loan repaid in about 1.5 years. As a private company, Continental should have greater freedom to operate, particularly in areas such as exploration.
Being a chairman of Continental Resources, Hamm and his family own 83% of the company's stock. Based on the shares outstanding as of October 12, the tender offer would be for almost 58 million shares of common stock, according to the Continental release.
The tender offer values Continental at roughly $27 billion. The offer price is slightly under Siebert Williams Shank & Co. LLC's $75 price target and compares to the consensus price target of $72.86 on FactSet and $71.73 on Bloomberg.
Continental is the largest leaseholder and the largest producer in the nation's premier oil field, the Bakken play of North Dakota and Montana. Continental is considered to be the largest producer in the Anadarko Basin of Oklahoma. Additionally, the company has newly purchased positions in the Powder River Basin of Wyoming and the Permian Basin of West Texas.
Meanwhile, the merger transaction does not demand a vote by Continental's shareholders and is anticipated to close before year-end. Following closing, the remaining public operators in the Bakken will include Chord Energy Corp., ConocoPhillips Co., Hess Corp., Devon Energy Corp., Northern Oil and Gas Inc., Marathon Oil Corp., Ovintiv Inc., and Exxon Mobil Corp.
Continental's board of directors, acting on the unanimous recommendation of a special committee including only independent and disinterested directors, has approved the merger agreement and the transactions contemplated thereby and recommended that Continental's shareholders tender their shares of common stock under the tender offer.
Intrepid Partners LLC is acting as financial adviser and Vinson & Elkins LLP (V&E) is acting as legal counsel to Hamm. Evercore is a financial adviser and Wachtell, Lipton, Rosen & Katz is providing legal counsel to the special committee of the Continental Resources board of directors. Sidley Austin lawyers Mark Metts and Kayleigh McNelis represented Evercore.
