After word leaked out over the past weekend that ConocoPhillips was in serious discussions to buy the fellow Houston-based Burlington Resources, the companies finalized on Monday an even richer deal than was initially reported.
ConocoPhillips ended up agreeing to increase the purchase price for Burlington from $30 billion to $35.6 billion, which computes to $90.69 per share of Burlington stock. That price is about a 10% premium on the $82.50 price for Burlington stock at the close of the market on Monday and an almost 20% premium on the price of Burlington stock from just this past Friday. ConocoPhillips will pay that amount in cash and stock, giving Burlington shareholders $46.50 in cash and .7214 share of ConocoPhillips common stock, which was equal to $44.19 of ConocoPhillips stock as of Monday’s market close. Current ConocoPhillips shareholders will own 83% of the company upon completion of the merger, which the companies expect to close during the first half of 2006.
ConocoPhillips will finance the acquisition mostly through debt, which has been its modus operandi during an acquistion spree under CEO James Mulva over the past several years. ConocoPhillips’s net debt will increase by about $18 billion to fund the acquisition, although Mr. Mulva noted yesterday that the company projects that net cash flow should retire 50% of that debt over the next three years.
As the market reverberates from the size of ConocoPhillips’ bet on the increasing value of Burlington’s unconventional natural gas assets, the logical question is “who’s next?” Burlington is one of several mid-tier exploration and production companies that have substantial North American gas assets and thus, those other companies could also be potential targets of bigger companies that elect to match ConocoPhillips’ bet of continued high natural gas prices. Among these other companies are EOG Resources Inc., XTO Energy Inc., Southwestern Energy Co., and Ultra Petroleum Corp., and even larger independents such as EnCana Corp., Devon Energy Corp., Pioneer Natural Resources, and The Woodlands-based Anadarko Petroleum Corp. could end up being targets of major E&P companies trying to lock up natural gas assets in a rising market.