Oil and gas producer Vanguard Natural Resources, LLC (VNR) has agreed to acquire Eagle Rock Energy Partners L.P. (EROC) in a deal valued at about $614 million, including the assumption of debt, the two companies said Thursday.
This is Vanguard's second acquisition within a month, after the company said in late April that it has agreed to buy Houston-based LRR Energy L.P. (LRE) for $539 million.
Under the terms of the deal, a subsidiary of Vanguard will merge into Houston, Texas-based Eagle Rock for a total consideration of $474 million in Vanguard common units and assume Eagle Rock's net debt of $140 million as of March 31, 2015. Following completion of the transaction, Eagle Rock will become a wholly-owned indirect subsidiary of Vanguard.
The transaction, approved by the boards of directors of both companies, will be a tax-free, unit-for-unit transaction with an exchange ratio of 0.185 Vanguard common units per Eagle Rock common unit.
Eagle Rock's unitholders will receive a consideration of $3.05 per common unit based on Vanguard's closing price as of May 21, 2015, representing a 24 percent premium to Eagle Rock's closing price of $2.45 per share on May 21, 2015.
Vanguard and Eagle Rock expect the transaction to close in the third quarter of 2015. The merger is subject to customary closing conditions, including the approval by both the Vanguard and Eagle Rock unitholders.
Vanguard noted that Eagle Rock's long-life, low-decline, mature assets are well-suited for its own upstream master limited partnership or MLP model.
The company said that the acquired assets will add scale in its own existing East Texas and Permian basins, and establish a new operating platform in the SCOOP/STACK play in the Anadarko basin. The acquisition will add about 1,778 producing wells and about 202,632 net acres to Vanguard's assets.
Scott Smith, Vanguard's President and CEO said, "The assets being acquired are attractive bolt-ons to our Mid-Continent, Permian and Gulf Coast basin operations. Eagle Rock has a meaningful position in the SCOOP and STACK plays which will provide attractive drilling opportunities for the next several years."
Vanguard expects the transaction to be neutral to cash flow in 2015, and accretive in 2016 and beyond.
Further, Vanguard said that pursuant to the terms and conditions of the recently announced acquisition of LRR Energy, it has obtained approval from the board of directors of the general partner of LRR Energy to enter into and consummate the proposed merger with Eagle Rock.
VNR closed Thursday's trading at $16.48, up $0.54 or 3.39 percent on a volume of 372,174 shares. In after-hours, the stock gained $0.02 or 0.12 percent to $16.50.
EROC closed Thursday's trading at $2.45, up $0.05 or 2.08 percent on a volume of 338,706 shares. In after-hours, the stock further gained $0.40 or 16.33 percent to $2.85.
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