01—Abstract
Summary
Summary of the 8-K filed March 15, 2024. Cited figures are marked; the original filing is the authoritative source.
This Form 8-K supplements the joint proxy statement/prospectus for APA Corporation's proposed acquisition of Callon Petroleum Company under a Merger Agreement dated January 3, 2024.
Under the agreement, Callon will merge into a wholly owned APA subsidiary, and each Callon share (other than Excluded Shares) will convert into 1.0425 shares of APA common stock, with cash in lieu of fractional shares. The Registration Statement on Form S-4 was declared effective on February 15, 2024, and special stockholder meetings for both companies are scheduled for March 27, 2024. The filing states that APA and Callon have received demand letters (two for APA and thirteen for Callon) and that five complaints have been filed, alleging disclosure deficiencies in the proxy statement/prospectus.
APA believes the allegations are without merit and says it is voluntarily adding supplemental disclosures to reduce the risk of delay and litigation expense without admitting any liability. The supplemental disclosures cover the negotiating history with APA and a competing bidder referred to as 'Company D,' the financial advisor fee arrangements, and the synergy estimates. Callon's board ratified its January 3, 2024 approvals by unanimous written consent on March 15, 2024.
Key figures disclosed include a $150 milliona annual run-rate synergy target, composed of approximately $55 million from public company cost and G&A savings, $40 million from refinancing Callon debt at APA's cost, and $55 million from operating efficiencies. The filing also reports that RBCCM is entitled to a fee of $13.0 million, of which $2.5 million was paid at signing, and that Morgan Stanley delivered an opinion that the exchange ratio is fair, from a financial point of view, to Callon's stockholders other than APA and its affiliates.
02—Key points
Key Highlights
- Merger terms: Callon stockholders receive 1.0425 shares of APA common stock per Callon share, with cash in lieu of fractional shares; Callon becomes a wholly owned, direct subsidiary of APA.
- Stockholder meetings: special meetings of APA and Callon stockholders are scheduled for March 27, 2024, to vote on matters needed to complete the merger; the Form S-4 was declared effective February 15, 2024.
- Litigation: APA received two demand letters, Callon received thirteen, and five complaints have been filed, all alleging deficiencies or incomplete information in the proxy statement/prospectus. APA believes the allegations are without merit.
- Synergies: the combined company's targeted annual run-rate synergies are $150 million, including about $55 million from public company and G&A savings, $40 million from debt cost replacement, and $55 million from operating efficiencies.
- Competing proposal: Company D's synergy estimate rose to between $160 million and $200 million on December 12, 2023, but Callon's board viewed its November 6 proposal as materially incomplete and lacking support for synergies and due diligence.
- Advisor fees: RBCCM is entitled to an aggregate fee of $13.0 million, of which $2.5 million was paid upon signing, and an affiliate of RBCCM is a lender under APA's and Callon's credit facilities.
- Board action and fairness: Callon's board unanimously approved the merger on January 3, 2024 and ratified that approval on March 15, 2024; Morgan Stanley's written opinion dated January 3, 2024 states the exchange ratio is fair from a financial point of view to Callon's stockholders.
03—Questions
Frequently Asked Questions
What will Callon stockholders receive in the merger?
Each outstanding share of Callon common stock (other than Excluded Shares as defined in the Merger Agreement) 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.
When are the stockholder votes and what litigation is pending?
Special meetings of APA and Callon stockholders are scheduled for March 27, 2024. APA has received two demand letters, Callon has received thirteen, and five complaints have been filed, including the Woodbury, Drulias, Durling, Ballard, and Williams actions. The demand letters and lawsuits allege that the proxy statement/prospectus contains disclosure deficiencies or incomplete information. APA believes the allegations are without merit and cannot predict the outcome or estimate a possible loss.
Why did Callon's board choose APA over Company D?
The filing states that Callon's board viewed Company D's November 6 proposal as materially incomplete, noting that Company D had not conducted sufficient financial and operational due diligence, had not substantiated its synergy estimates, and had not commented on Callon's draft merger agreement. The board also cited APA's expeditious participation, a more diversified asset base, a larger market capitalization, and an investment grade credit rating as reasons for its preference.
What are the expected synergies from the merger?
The parties expect an ultimate annual run rate of $150 million in synergies, composed of approximately $55 million from eliminating public company costs and optimizing G&A, approximately $40 million from replacing Callon's debt cost with APA's debt cost over time, and approximately $55 million from operating efficiencies.
Did any other parties express interest in Callon after the announcement?
The filing states that from the announcement of the transaction on January 4, 2024 through March 15, 2024, no potential counterparties made contact with Callon or its advisors to express interest in acquiring Callon.
04—Continue