Baytex – Volume and Buyout Speculation Red, great volume table! Thanks!
All,
Mergers and acquisitions, if only we could know the future in advance!
Motivations...
Individuals: We seek capital appreciation plus dividends, if there are any.
Institutions: Same as individuals, for their customers.
Larger oil producers: Increased BOE/D, and/or same as those above.
All oil and gas producers want more production at these oil prices.
In a pricing environment like we have today, to summon a genie and wish for more oil production sounds nice. Getting it done is another matter. I am certain nobody has a genie. If you are to create additional BOE/D, then you are looking at 18 months before it is realized. Permitting to production always requires time. What are the other options available, to gain more immediate production?
BUY SHARES IN OTHER OIL PRODUCING COMPANIES
MERGER
ACQUISITION
Institutions are better equipped, and staffed, than we are to find value in oil producers. Obviously, the shareholders of Baytex bought shares, because we believed we were buying the best oil company we could find. Institutions and oil producers could easily draw the same conclusion. We know that some have drawn the same conclusions as we did regarding Baytex.
So we have a lot of volume recently, and mention of buyouts on the board. I have posted buyout speculation in the past. I think a potential Baytex buyout is not as attractive as it would have been three months ago. What has changed is, we have a much higher share price, a lot less debt at lower rates, the best wells in a new area of development, and buybacks are a reality instead of a rumor. Is a buyout offer still possible? We have to accept it as a possibility. The price will have to be higher than it might have been in months past, though it could still happen.
So how might this play out?
I have been in this situation with companies I worked for. The best example I have, saw two offers that did not get accepted, before one that was. The third one went forward, and it became a disaster years later. The stock price saw wild swings with the announcements, and later rejections of, the first two proposals. These first two proposals would also have been better choices to accept.
Baytex might receive some offers and reject them. All you need for proof is your own belief in upside potential with this company. A major oil producer will see it differently. They want the added oil production at a fixed cost, without the hassle of development, and the time required to make it happen. If it happens, the acquiring company will eliminate a lot of redundant jobs, making the earnings relative to the new assets, greater than they were before. History tells us all we need to know in this regard.
What has changed for the potential buyers? Every day they are gaining more capital that could enable a buyout, possibly without the need to issue shares, or bonds, or take out loans to do so. A non oil producing company could consider buying an oil company at this time. Venture capitalists might see our assets as a chop and distribute play for their own amusement. Acquire Baytex, divide the assets by region and type, and sell them to many other oil producers, at a one time profit. Don’t believe this can happen? Again, look at history. Until Baytex reaches a fair value, which is a lot higher than it is now, this is a real possibility. Just like Bud Fox said to Gordon Gecko regarding Endicott Steel: “The break up value is more”.
This is why researching the board of directors past is important. I do not believe we have a self serving board. This company has a long history of shareholder loyalty, which is a lot more than I can say for some of the executives we have here in the United States.
The volume we have recently is significant. It could mean nothing. It could also be a BIG DEAL. I am certain, we as shareholders on this board, will not be the first to know!
All I can say is, determine in advance, what your action will be, on any type of unexpected event. If this happens, you are better off, if you do not experience indecision. Know your moves in advance!
RS