SandRidge Energy Inc. (NYSE: SD) emerged from an $8.3 billion bankruptcy in October 2016 while Bonanza Creek Energy Inc. (NYSE: BCEI) emerged in April after clearing up about $1.4 billion in debt. On November 15, SandRidge agreed to pay $746 million for Bonanza Creek and on November 22, Carl Icahn announced that he had acquired a 13.5% stake in SandRidge and said he intends to vote against the “nonsensical Bonanza transaction.”
He’s not alone. Private equity firm Fir Tree Partners owns a stake of about 8.2% in SandRidge and Fir Tree also opposes the transaction in which SandRidge has agreed to pay $19.20 in cash and $16.80 in stock for all outstanding Bonanza Creek shares. The price reflects a premium of 17.4% to Bonanza Creek’s shares a week before the deal was announced, but, according to Fir Tree, a 75% premium to the $421 million valuation six months ago when Bonanza Creek’s creditors invested new capital in the company.
In a filing with the U.S. Securities and Exchange Commission (SEC), Fir Tree claimed:
With zero net debt, ~200,000 acres and decades of remaining inventory to exploit, we believe SandRidge is positioned to both return capital to its shareholders and grow production in a disciplined manner. The proposed acquisition represents a complete reversal of management’s post-bankruptcy strategy and reminds us of SandRidge’s prior history when this same management team acquired disparate assets and added leverage with reckless abandon.
Icahn, in an SEC filing, said he “could not be more in agreement with the views expressed in the [Fir Tree] statement” and noted that at least two other “large” holders of SandRidge stock, Susquehanna Advisers and Cannell Capital also oppose the deal and intend to vote against it.
Saying that he had tried and failed to reach SandRidge CEO James Bennett, Icahn said he looked forward “to hearing what possible justifications management could have for entering into such a seemingly ill-advised, dilutive and value-destructive acquisition and why they believe the transaction is anything more than an entrenchment technique.”
A SandRidge spokesman cited in The Wall Street Journal said:
We believe our Bonanza Creek acquisition will drive strong risk-adjusted returns for SandRidge stockholders and be accretive to cash flow per share. We look forward to communicating the merits of this transaction with our stockholders and to filing more details in our proxy.
SandRidge stock dropped almost 20% after it announced the transaction but shares gained about 5.3% on Wednesday to close the day at $17.50 in a 52-week range of $14.65 to $24.76.
Bonanza Creek shares closed up about 1.5% on Wednesday at $32.14.