ConocoPhillips-Burlington deal: Ill-timed or a masterstroke?
NEW YORK - The third-largest oil and gas group in the US, ConocoPhillips announced late on Monday that it would be acquiring Burlington Resources in a $35.6 billion deal, which will make it the top natural gas producer in North America.
The deal comes at a time when energy prices are at an all-time high and fuel resources are dwindling at a rapid rate. Top companies are seeking to boost their output through strategic acquisitions. In the current deal, Conoco will shell out $46.50 in cash and 0.7214 in stock per Burlington share.
James Mulva, Conoco chief executive was enthusiastic about the deal even as the Wall Street was a tad disappointed, "With this transaction, ConocoPhillips will expand our portfolio of high quality, low-risk, long-lived gas reserves, and become a leading producer of natural gas in North America," he said. Mr. Mulva is something of a dynamo as far as energy tocks are concerned. Last year, he managed to snatch a 7.6 percent share in Russia's Lukoil, a company that was being courted by many international players.
However, analysts were not so pleased with the Burlington deal. "We believe the market will struggle with the strategic logic of such a tie-up from both the perspective of timing given current record natural gas prices and portfolio overlap, which at first glance we believe brings little to Conoco, save for scale," analysts at Citigroup wrote in a note to clients.
In a press briefing, many analysts questioned the logic behind the deal saying that the current scenario when energy prices are falling does not favor Conoco. "We don't see necessarily a continuation of gas prices that we've seen here recently going out in the long-term," Mulva said. He added that there was going to be a correction in gas prices, but that this would not be as huge as anticipated. Mulva also said that both the companies had long been mulling about a deal, but this seemed the best time since investors also gave their nod.
Conoco shares dipped $2.96, or 4.8 percent, to $58.19 in early trading on the New York Stock Exchange, while Burlington gained 7.1 per cent to $81.48.
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