new from Scotia Daily Edge ■ Longview and Surge announced a friendly takeover deal on March 31.
Implications
■ Friendly deal. Longview and Surge Energy (covered by Cameron
Bean, SO, $8 TP) have entered into an arrangement whereby SGY will
acquire all remaining shares of LNV outstanding in an all-share deal, at
a ratio of 0.975 SGY shares per LNV share. Recall that SGY had
previously acquired 9.3M shares of LNV (19.8% of the outstanding
stock). The transaction is valued at $429M and is expected to close in
June, subject to approval of 2/3 of LNV shareholders and >50%
approval of LNV shareholders excluding the stock held by Surge. LNV
has agreed to a $7.7M break fee and not to solicit other offers. SGY has
the right to match any superior offer within 72 hours of notification.
■ Tender. We believe that shareholders should approve the deal, as we
were of the opinion that as a going concern LNV shares would likely
struggle to hold their valuation given the flat growth profile. We had
previously noted that demonstrated operational performance would
likely be required by investors before the stock would receive a higher
multiple; in our view, SGY would likely present a better operational fit
for the assets. Our revised target reflects the implied offering price for
LNV shares based on the exchange ratio and SGY's Mar. 31 closing
price of $6.14.
Recommendation
■ Our rating moves to Tender, and our target to $6.00/share.