TD This is a USD target which equates to around C$25.50. GLTA
Enerplus Corp.
(ERF-N) US$16.42
Chord Offer Represents Compelling Valuation. TENDER
Event
Enerplus to be Acquired by Chord. Announces YE-2023 Results.
Impact: POSITIVE
Takeout Offer a 15% Premium: ERF announced that it has agreed to merge
with U.S. Bakken producer Chord Energy (CHRD-US) [mid-year close]. Under the
agreement, each ERF share will be exchanged for 0.10125 CHRD shares and $1.84
cash. This equates to $18.85 per ERF share — a 15% premium to yesterday's close.
Premium on Top of Recent Deal-speculation Outperformance: Notably, Enerplus
is the top-performing E&P in our coverage universe MTD after media reports
discussed potential merger talks between Enerplus and Devon (DVN-US). This
drove ERF shares up 13% MTD — outperforming CPG/WCP average by ~6%.
Valuation Metrics Compelling (References Below at Strip):
We estimate that the offer represents a takeout valuation of 4.6x 2024E EV/DACF
(4.4x 2025E EV/DACF). This is the highest valuation ERF has traded at since
2018 (excluding Q2/20) on the basis of consensus forward estimates.
We estimate 2024 FCF of $345mm (after all capex) or $470mm (net of
maintenance capex of $425mm); this equates to a valuation of 8-11% FCF yield.
On a relative basis, this values Enerplus at a 15% premium to the average of
WCP/CPG on an EV/DACF basis and an 8% premium based on unlevelled FCF
yield (net of sustaining capital).
We calculate a 2P strip NAV of $15.91/share using YE-2023A reserves and net
debt. The transaction represents an 18% premium to TD-estimated 2P NAV.
Potential for Competing Offers Low (but Not Zero): Given recent media reports
referencing potential merger talks with Devon, it is possible there are at least two
interested parties. However, conversations with our U.S. research counterparts lead
us to believe there is a low probability of a superior offer from Devon.
TD Investment Conclusion
The offer values ERF within 10% of our previous target (which assumed higher-than-
strip gas prices). We are revising our rating to TENDER (from Buy) and adjusting our
target price to $18.85 based on the exchange ratio at Chord's February 21 closing
price plus cash.