01—Abstract
Summary
Summary of the 8-K filed January 4, 2024. Cited figures are marked; the original filing is the authoritative source.
On January 3, 2024, APA Corporation entered into an Agreement and Plan of Merger with Callon Petroleum Company and Astro Comet Merger Sub Corp., a wholly owned APA subsidiary, under which Merger Sub will merge into Callon and Callon will survive as a wholly owned subsidiary.
Each Callon share (other than Excluded Shares) will convert into the right to receive 1.0425 shares of APA common stock, with cash in lieu of fractional shares. The boards of APA have unanimously approved the merger and the APA Stock Issuance and recommended that APA shareholders approve the issuance. The joint press release (Exhibit 99.1) states the transaction is valued at approximately $4.5 billiona, inclusive of Callon's net debt, and that APA expects to issue approximately 70 million shares, with existing APA shareholders owning about 81% of the combined company and Callon shareholders about 19%.
The filing states that closing is subject to shareholder approvals from both companies, expiration or termination of the HSR Act waiting period, the absence of prohibiting governmental orders, effectiveness of an S-4 registration statement, and Nasdaq listing authorization. The merger agreement sets an outside Termination Date of October 3, 2024, extendable under specified antitrust circumstances. Termination fees are $85 millionb payable by Callon and $170 million payable by APA in specified circumstances, and expense reimbursement of up to $48 million (APA) or $24 million (Callon) applies if shareholders fail to approve.
APA also obtained a commitment for a senior unsecured bridge facility of up to $2.0 billionc from JPMorgan Chase Bank, N.A., Citigroup Global Markets Inc., and Wells Fargo entities. The press release and investor presentation state that the transaction is expected to close in the second quarter of 2024, be accretive to key financial metrics, and generate estimated annual run-rate synergies of more than $150 million, and that pro forma production would exceed 500,000 BOE per day with enterprise value above $21 billion.
02—Key points
Key Highlights
- Transaction structure: all-stock merger in which each Callon share converts into 1.0425 shares of APA common stock, with APA expected to issue approximately 70 million shares.
- Implied value: about $4.5 billion including Callon's net debt, with the press release stating an implied value of $38.31 per Callon share based on APA's January 3, 2024 closing price.
- Pro forma ownership: existing APA shareholders expected to own about 81% and existing Callon shareholders about 19% of the combined company.
- Synergies and accretion: estimated annual run-rate savings of about $150 million (roughly $55 million overhead, $40 million cost of capital, $55 million operating), with the transaction expected to be accretive to key financial metrics.
- Scale: pro forma production above 500,000 BOE per day and pro forma enterprise value above $21 billion; Callon adds nearly 120,000 Delaware Basin acres.
- Financing: APA plans to retire Callon's existing debt and replace it with $2.0 billion of APA term loan facilities, with a $2.0 billion committed senior unsecured bridge facility arranged on January 3, 2024.
- Termination economics and timing: $170 million APA termination fee and $85 million Callon termination fee in specified circumstances; outside date October 3, 2024; expected closing in Q2 2024.
03—Questions
Frequently Asked Questions
What will Callon shareholders receive in the transaction?
Each outstanding share of Callon common stock (other than Excluded Shares) will be converted into the right to receive 1.0425 shares of APA common stock, without interest, with cash paid in lieu of fractional shares.
What approvals are needed before the merger can close?
Closing requires approval from APA shareholders (for the APA Stock Issuance) and Callon shareholders, expiration or termination of the HSR Act waiting period, no governmental order or law prohibiting the merger, effectiveness of APA's Form S-4 registration statement, and authorization of the APA shares for listing on Nasdaq.
What happens if the deal is terminated?
Callon would pay APA a $85 million termination fee in specified circumstances, such as a superior competing proposal or a change of recommendation, and APA would pay Callon a $170 million termination fee in comparable circumstances. If shareholders fail to approve, the party whose shareholders rejected the proposal reimburses the other party's transaction expenses, up to $48 million for APA or $24 million for Callon.
When is the transaction expected to close and what is the outside date?
The press release states the transaction is expected to close in the second quarter of 2024. The merger agreement's Termination Date is October 3, 2024, subject to automatic and mutual three-month extensions in specified antitrust circumstances.
How will the deal be financed and what does it mean for leverage?
The transaction is all-stock. APA expects to retire Callon's existing debt and replace it with $2.0 billion of APA term loan facilities, which are described as pre-payable. APA states its pro forma net debt to adjusted EBITDAX would be 1.1x, up from 1.0x, and that it intends to maintain investment-grade metrics.
04—Continue