Under the terms of the deal, Parsley shareholders will receive a fixed exchange ratio of 0.1252 shares of Pioneer common stock for each share of Parsley common stock owned. The total value for the transaction, inclusive of Parsley debt assumed by Pioneer, is nearly $7.6 billion, the company said.
This all-stock transaction constitutes a 7.9% premium to Parsley shareholders based on unaffected closing share prices as of October 19, 2020. Pioneer will issue approximately 52 million shares of common stock in the transaction.
“A Pioneer Natural/Parsley Energy (PXD/PE) merger makes a lot of sense on paper, does not mean you need to chase the stocks. Playing these low/no premium mergers has not been easy money even if the business rationale for the mergers makes sense,” said Subash Chandra, equity analyst at Northland Securities.
“This PXD/PE news seems much the same script as ConocoPhillips/Concho Resources (COP/CXO); where there is smoke there may be fire and with PE set to report next Wednesday, one would expect something to happen sooner rather than later, if there are legs to this story,” Chandra added.
On Monday, ConocoPhillips said it will acquire the U.S. shale oil producer Concho Resources in an all-stock transaction valued at $9.7 billion.
The deal is expected to close in the first quarter of 2021. After closing, existing Pioneer shareholders will own approximately 76% of the combined company and existing Parsley shareholders will own approximately 24% of the combined company.
Pioneer Natural Resources shares closed 4.04% lower at $83.53 on Tuesday; the stock is down about 45% so far this year. On the other hand, Parsley Energy shares closed 5.15% higher at $10.62; however, the stock is down over 40% year-to-date.
“This combination is expected to drive annual synergies of $325 million and to be accretive to cash flow per share, free cash flow per share, earnings per share and corporate returns beginning in the first year, creating an even more compelling investment proposition. Further, Pioneer’s emphasis on environmental stewardship aligns with Parsley’s culture of sustainable operations,” said Scott D. Sheffield, Pioneer’s President and CEO.
“The addition of Parsley’s high-quality assets enhances Pioneer’s investment framework by improving our free cash flow profile and strengthening our ability to return capital to shareholders. We look forward to integrating Parsley into Pioneer and continuing our history of strong execution.”
Pioneer Natural Resources Stock Price Forecast
Fourteen equity analysts forecast the average price in 12 months at $120.85 with a high forecast of $140.00 and a low forecast of $95.00. The average price target represents a 44.68% increase from the last price of $83.53. From those 14 equity analysts, eleven rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.
Evercore ISI lowered its stock rating for Pioneer Natural Resources to “In-line” from “Outperform” and cut the target price to $95 from $127. Keybanc raised their price target to $118 from $115; Truist Securities lowered their target price to $95 from $125; BofA Global Research raised their price objective to $130 from $122; Wells Fargo upped their price target to $153 from $134; Susquehanna increased their price target to $120 from $117.
Several other analysts have also recently commented on the stock. Pioneer Natural Resources had its price objective hoisted by JPMorgan Chase & Co. to $119 from $107. JPMorgan Chase & Co. currently has an overweight rating on the oil and gas development company’s stock. Citigroup raised their price target to $130 from $118 and gave the stock a buy rating in August.
“An unsubstantiated report from Dow Jones after the close states that PXD is in talks to buy PE, potentially the 3rd all-stock deal within our coverage within the last few weeks. We ran numbers on modest premium assumptions and see ~2% improvement to corp FCF yields and ~15% DCPS accretion, though would argue that PXD does not need to pursue a deal to prosecute its modest growth/ROC plan,” said David Deckelbaum, equity analyst at Cowen and Company.
“An all-equity, the low premium deal would succeed in raising PXD’s FCF profile by 2% on a yield, be accretive to DCPS by 15% and keep leverage under 0.5x in 2022. We assume G&A synergies only of $120m as well costs are largely in-line. Oil cut improves modestly to 60% from 58% with a 50% increase to overall production volumes. The pro-forma entity could support a 10%+ dividend by 2022 while growing production by 5% with a slightly compressed 2022E EBITDAX multiple of 4.3x. Such merits of scale are warranted, but again, not necessary,” Deckelbaum added.
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