Encana To Buy Texas-based Athlon Energy In $7.1 Bln Deal

(RTTNews) - Canadian energy producer Encana Corp. (ECA.TO, ECA) Monday announced a definitive merger agreement to buy Texas-based Athlon Energy Inc. (ATHL) in an all-cash tender offer for $5.93 billion. Encana will also assume Athlon's $1.15 billion of senior notes, resulting in a total transaction value of approximately $7.1 billion.

In pre-market activity on the NYSE, Athlon shares were gaining $11.25 or 24.07 percent, and trading at $57.98.

As per the deal, Athlon shareholders will receive cash consideration of $58.50 per share. This represents a premium of 28% over the average trading price of Athlon stock for the last 20 days and a 25% premium over the trading price at market close on Friday. The deal is projected to be immediately accretive to cash flow per share, and to become free cash flow positive in 2016.

The offer is expected to commence within 10 business days and shareholders will have 20 business days to tender their shares. Athlon board of directors has unanimously approved the deal, and recommended to its shareholders that they tender to the offer.

Subject to certain conditions, Athlon's senior management, as well as funds affiliated with Apollo Global Management, LLC (APO) have agreed to tender their respective shares to the offer, representing approximately 35.8 percent of Athlon shares on a combined basis.

Once the conditions in the merger agreement are met, Encana's indirect subsidiary will be merged into Athlon. Closing of the transaction is expected by year-end 2014.

Following the deal, Athlon's land position of approximately 140,000 net acres focused solely in the heart of the oil-rich Midland Basin will be added to Encana's portfolio. The deal will add current production of about 30,000 barrels of oil equivalent per day or boe/d based on Athlon's current estimated production including recent acquisitions.

Further, Encana said it sees the potential for approximately 5,000 horizontal well locations with potential recoverable resource of approximately 3 billion barrels of oil equivalent.

In 2015, Encana intends to invest at least $1 billion of capital in the play and ramp up from three to at least seven horizontal rigs by year-end 2015. The Permian will play an important part within Encana's growth portfolio, contributing significantly to company-wide projected total liquids production of around 250,000 barrels per day by 2017.

Doug Suttles, Encana President & CEO, said, "During our strategic review last year, we carefully studied North America's premier basins and identified the massive horizontal, multi-zone, development potential in the Permian... It is early days in the horizontal development of the Permian play and we see tremendous opportunity to enhance and accelerate value by applying our proven resource play model."

Following this oil-rich acquisition, Encana now expects to achieve its initial 2017 target to reach 75 percent of operating cash flow from liquids production in 2015.

Encana further said it expects that the closing of the offer will trigger the change of control provisions in the indenture governing Athlon's $500 million aggregate principal amount of 7 3/8% Senior Notes due 2021. It will not trigger the change of control provisions in the indenture governing Athlon's existing $650 million aggregate principal amount of 6% Senior Notes due 2022.