Shares of QEP Resources, Inc. (QEP)soared 42.7% to $8.68 on Monday after hedge fund manager Elliott Management Corp. made a bid to buy the oil and gas producer for $2.07 billion, claiming the company was “undervalued.”
In a letter to the Denver-based company, Elliot Management offered to buy QEP Resources for $8.75 a share in cash, which the hedge fund manager said represents a premium of 44% over Friday’s closing stock price.
“Despite the progress to date, Elliott believes that QEP remains deeply undervalued in the market today,” the letter said. “We have conducted an extensive amount of public diligence on the company and have had an ongoing dialogue with the sell-side analyst community. We believe shareholders are frustrated and that a sale of the company would be the best approach to deliver maximum value to shareholders.”
Elliot said it expects to finance the proposal with a combination of available cash, the assumption of debt, and debt financing from third-party lenders. Elliott said it has about $35 billion of capital under management and “has more than adequate capital to consummate this acquisition.”
In its letter, Elliot Management said that QEP “has made significant strides to transition to a pure-play Permian company.” The Permian Basin of West Texas and New Mexico is at the heart of the shale boom in North America.
In December, Chairman and CEO Charles “Chuck” Stanley retired from the company, effective Jan. 14. The board named Timothy “Tim” Cutt as president and CEO.
Permian Basin Pure-Play
QEP hatched a strategy in February 2018 to become a Permian Basin pure-play operator, thanks in part to encouragement by Elliott. The move essentially meant changing the fabric of the company by peeling off chunks of its portfolio through various asset sales totaling $2.6 billion.
Most recently, QEP agreed to the divestiture of its Cotton Valley and Haynesville position for $735 million and its Williston Basin assets for $1.7 billion, both of which are pending closure.
Pro forma the divestitures, QEP will work a 50,700 net-acre position in the Permian Basin that averaged roughly 55,000 barrels of oil equivalent per day in third-quarter 2018. And, despite the multibillion-dollar worth of asset sales, QEP’s roughly $2.2 billion market value in November remained about the same as at that time in 2017.
Elliott’s takeover offer is conditioned on the closure of QEP’s Haynesville asset sale, but not the closing of the Williston divestiture. The firm expects to finance its proposal with a combination of cash, the assumption of debt and debt financing from third-party lenders.