$4.3 billion Continental takeover offer could trigger bidding war
(Bloomberg) — Billionaire Harold Hamm may trigger a bidding war for Continental Resources Inc. with his $4.3 billion takeover offer for the shale powerhouse he founded.
Hamm’s all-cash offer of $70 for each share he doesn’t already own represents an 8.5% premium to Monday’s closing price and will be evaluated by Continental’s board of directors, the company said in a statement Tuesday. The stock soared as much as 17% in New York trading for the biggest advance in 18 months.
The offer by Hamm and his family members may be intended to draw competing, higher bids, according to Truist Securities.
“We would not be surprised if a process ultimately resulted in a sale given our forecast that the company is worth at least our $95/share price target,” Neal Dingmann, an analyst at Truist, write in a note to investors. “It will be worth watching what activity level a potential outside bidder would determine for the assets versus what the current owner will run.”
Although Continental stock surged more than 80% in the year leading up to Hamm’s offer, the 76-year-old wildcatter has said the diminishing number of listed US drillers evinced a “lack of support from the public market” for the industry.
“We have consistently said that as long as we were appreciated in the market, we would remain a public company, but if our opportunities were limited by being public, we should look at alternatives,” Hamm said in a message to employees that was included in a public filing on Tuesday. “We have determined that the opportunity today is with private companies who have the freedom to operate and aren’t limited by public markets.”
Continental was up 15% to $74.42 as of 10:10 a.m. in New York after earlier topping $75.
Energy equities have been outperforming the rest of the market this year amid a dramatic rally in oil and natural gas prices. Shale drillers that were pummeled during the worst of the Covid-19 pandemic and a plunge in global crude demand are resisting calls from US President Joe Biden to boost output as inflation worsens.
Hamm, the youngest of 13 children born to poor Oklahoma sharecroppers, started in the energy industry at the age of 18 with an oilfield- services business he funded with a $1,000 loan. Continental helped pioneer the shale-oil boom and debuted as a publicly traded company in 2007. Hamm’s net worth is $19.7 billion, according to the Bloomberg Billionaires Index.
Hamm was one of the first people to see the opportunities in horizontal drilling and hydraulic fracturing in the Bakken shale region of North Dakota and Montana. More recently, he’s expanded into the Permian Basin of West Texas as well as Wyoming’s Powder River Basin.
In April, Continental raised its 2022 drilling budget by about 15% to $2.65 billion and hiked its crude production target by 2.5%. The company also boosted dividends by 22%.
Hamm has taken steps this year to secure his legacy. In February, he handed each of his five children stakes in the company which at the time were valued at about $2.3 billion. Despite the transfers, which were largely tax-free, Hamm said that he retained control because his children can’t sell the shares until he dies.
Continental “has always been closely held and consummating a full take-private has been mentioned previously as a viable alternative and is not fully surprising,” David Deckelbaum, an analyst at Cowen, wrote in a note to clients.
The Hamm family collectively owns 83% of the total outstanding shares of the company, according to Tuesday’s statement.
A higher offer price will probably be needed for shareholder approval given the “current elevated commodity price environment,” Scott Hanold, an analyst at RBC Capital Markets, wrote in a note. The 12-month target price is about $74, according to analyst estimates compiled by Bloomberg.
Continental said its board will establish a special committee to consider the proposal.