By: Seeking Alpha – Goodrich Petroleum (GDP) has agreed to be acquired by Paloma Partners VI Holdings (an affiliate of EnCap Energy Capital Fund XI) for $23 per share in cash. This values the company at approximately $480 million based on approximately 16.94 million shares and including the assumption of its first-lien debt.
This deal price is a bit lower than what I had previously estimated its value at, which was mid-$20s based on long-term $3.00 NYMEX gas and high-$20s based on long-term $3.25 NYMEX gas. The $23 per share deal price also appears to be a bit lower than what Southwestern Energy paid for GEP Haynesville (based on multiples to both current production levels and 2022 EBITDAX).
There is the potential for an unsolicited superior offer to come in, although the $15 million deal termination fee and Paloma’s all-cash offer makes that more challenging to achieve.
Notes On Valuation
The $480 million valuation values Goodrich at approximately $2,500 per flowing Mcfe based on the midpoint of its previous guidance for Q4 2021 production averaging 187,500 to 197,500 Mcfe per day.
For comparison, Southwestern Energy’s (NYSE:SWN) $1.85 billion acquisition of GEP Haynesville values that Haynesville asset at approximately $2,640 per flowing Mcfe. The consideration is approximately 72% cash and 28% in Southwestern stock.
The GEP Haynesville sale also values it at approximately 2.9x EBITDAX at $4 per Mcf Henry Hub natural gas in 2022. The $480 million purchase price for Goodrich values it around 2.4x EBITDAX (including hedges) at that same natural gas price in 2022 assuming that it grows production to an average of 225,000 Mcfe per day as it had previously targeted.
The $23 per share deal price for Goodrich appears to at least modestly undervalue it compared to Southwestern’s acquisition of GEP Haynesville. At $2,640 per flowing Mcfe, Goodrich would be valued at approximately $24.40 per share, which is around my estimated (mid-$20s) value for Goodrich using long-term $3.00 NYMEX gas. At 2.9x estimated 2022 EBITDAX at $4 Henry Hub natural gas, Goodrich would be valued at a bit under $29 per share. This is around my estimated (high-$20s) value for Goodrich based on long-term $3.25 NYMEX gas.
Notes On The Transaction
Paloma’s offer for Goodrich has received the support of holders of a majority of the outstanding shares of Goodrich’s common stock (at least after the conversion of certain convertible notes into equity). It also has been unanimously approved by Goodrich’s Board of Directors.
Given that the Paloma offer already has the support of holders of a majority of the common stock, it seems very likely that the deal will go through. Goodrich is not allowed to solicit other offers, but an unsolicited superior offer could still be made.
Comstock Resources (CRK) could be a potential acquirer for Goodrich, but since it is working on reducing its debt it probably would only want to have the cash (and assumption of debt) component add up to around $200 million so that the transaction is deleveraging. Comstock’s total offer would likely need to add up to around $26+ per share to be considered superior given the $15 million termination fee and the smaller cash component. I’d consider that a roughly fair value offer for Goodrich, but it may not be enough of a bargain for Comstock to make that offer.
Conclusion
Paloma Partners VI made a $23 per share offer for Goodrich that was unanimously approved by the Board of Directors and also has received the backing of holders of a majority of the common shares. This is a bit lower than the estimated value that I had calculated for Goodrich before, and also looks to be a bit lower than the price that Southwestern Energy paid for GEP Haynesville.
Goodrich is not allowed to solicit other offers, but there is the potential for unsolicited superior offers to come in. Those offers (assuming other offers would include a mix of cash and stock) would need to be a decent amount higher though to overcome the $15 million termination fee and the all-cash nature of Paloma’s offer though.
