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ConocoPhillips Confirms $9.7B Acquisition Deal With Concho

ConocoPhillips COP has confirmed its decision to buy Concho Resources Inc. CXO in an all-stock transaction, valued at $9.7 billion. During the coronavirus pandemic, this has been the largest oil accord in the United States.

Per the agreement, each shareholder of will get 1.46 shares of ConocoPhillips. Thus, the transaction has valued Concho at a 15% premium to its closing price on Oct 13. Once the deal closes in the first quarter of 2021, ConocoPhillips will be able to expand its foot print in the Permian, the most prolific basin in the United States. Importantly, the deal will make the combined entity the largest independent oil firm in America. Per JPMorgan Chase & Co. analysis, the combined firm will be the second-largest producer of oil and gas in Permian, following Occidental Petroleum Corporation.

Importantly, by 2022, the combined firm will be able to save cost and capital of $500 million, annually, as estimated by both ConocoPhillips and Concho. Thus, it has become increasingly evident that the oil industry is turning to acquisitions and mergers with an aim of cutting costs that will help combat the pandemic-induced stretch of oil price slump.

Overall, the premium that ConocoPhillips will pay for the acquisition is modest, as believed by many analysts. Apart from the all-stock nature of the transaction and the modest premium, another important point that is making most analysts favor the deal is the low debt levels of both ConocoPhillips and Concho. This is because energy players with strong balance sheets are better-positioned to weather the low oil pricing scenario.

ConocoPhillips, a leading oil and gas explorer and producer, is not the only energy firm that has agreed on an all-stock deal in the pandemic. On Sep 28, Devon Energy Corporation DVN decided for a $2.6 billion all-stock merger agreement with WPX Energy, Inc.. Also, in Jul 20, integrated energy major Chevron Corporation CVX agreed to acquire Noble Energy, Inc. in a roughly $5 billion all-stock deal, which was recently closed.

Currently, ConocoPhillips carries a Zacks Rank #4 (Sell), while Concho has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Chevron Corporation (CVX): Free Stock Analysis Report
 
ConocoPhillips (COP): Free Stock Analysis Report
 
Concho Resources Inc. (CXO): Free Stock Analysis Report
 
Devon Energy Corporation (DVN): Free Stock Analysis Report
 
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