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Range Resources to Merge with Memorial Resource Development

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Range Resources-Memorial Resource Development merger

On May 16, 2016, natural gas producers Range Resources (RRC) and Memorial Resource Development (MRD) announced a definitive merger agreement. Key highlights of the merger agreement are:

  • Range Resources will acquire all of the outstanding shares of common stock of Memorial Resource Development in an all-stock transaction valued at $4.4 billion.
  • The valuation includes the assumption of Memorial Resource Development’s net debt of $1.1 billion as of March 31, 2016.

  • Memorial Resource Development’s shareholders will receive 0.38 shares of Range Resources’ common stock for each share of Memorial Resource Development common stock held. Based on the closing price on May 13, 2016, the transaction has an implied value to Memorial Resource Development shareholders of $15.75 per share. This represents an ~17% premium to the closing price of its stock.
  • Following the transaction, Memorial Resource Development shareholders are expected to own ~31% of the outstanding shares of Range Resources.
  • Memorial Resource Development will have the right to nominate an independent director from Memorial Resource Development to a seat on Range Resources’ board. The combined company will be led by Range Resources’ senior management.
  • The merger is expected to close in 2H16.
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Memorial Resource Development’s implied value

As seen in above chart, it must be noted that Memorial Resources Development started trading on NASDAQ in June 2014. Its listing price was $19 per share. Memorial Resource Development’s stock price set an all-time high of $30.32 per share. Its 52-week high is $20.60. In other words, the implied value for Memorial Resource Development’s shareholders of $15.75 per share is lower than its listing price, all-time high price, and 52-week high price. Memorial Resource Development’s 52-week low is $8.30 per share.

Also, the ~17% merger premium that Memorial Resource Development shareholders will receive, is low compared to the average of ~64% for the sector, according to data compiled by Bloomberg.

Range Resources preserves cash

Because this is an all-stock transaction, no cash will change hands. This is certainly beneficial to Range Resources, especially in today’s uncertain, low natural gas (UNG) (UGAZ) (DGAZ) and crude oil (USO) (UWTI) (DWTI) price environment. In order to deal with lower energy prices and raise cash, other upstream players from the S&P 500 (SPY) and S&P Midcap 400 (MDY) including Murphy Oil (MUR), Chesapeake Energy (CHK), Anadarko Petroleum (APC), and CONSOL Energy (CNX) also recently completed divestitures. In order to preserve cash, Southwestern Energy (SWN) elected to pay its dividend on preferred stocks in shares of the company’s common stock.

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