Rationale for the Memorial Resource-Range Resources Transaction

Range Resources is growing its portfolio in the Southeast US. Natural gas exports seem to be a promising growth area. The deal will enhance its credit profile.

Brent Nyitray, CFA, MBA - Author

May 19 2016, Updated 2:08 p.m. ET

uploads///MRD RRC transaction rationale

Range Resources diversifies its portfolio

As we saw in the first part of the series, Range Resources (RRC) is buying Memorial Resource Development (MRD) in a $4.4 billion stock transaction including assumed debt. Range Resources is a predominantly Appalachian oil and gas company. It’s beefing up its portfolio in the Southeast US. Natural gas exports seem to be a promising growth area. This deal will also enhance Range Resources’ credit profile.

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Management’s comments

Jeff Ventura, Range Resource’s CEO, said that “This is an exciting announcement that brings together two high-quality unconventional producers with large de-risked, high-return projects into one portfolio. This acquisition will give Range strategic positioning in both the Appalachian and Gulf Coast regions, providing greater marketing capabilities and opportunities, with added beneficial exposure to growing natural gas demand. The transaction is also accretive to our cash flow, bolsters our credit profile and enhances the overall portfolio. Like Range, the MRD team has a strong culture and track record of safe and efficient operations. We look forward to adding their talents and capabilities to our company, strengthening one of the top overall technical teams in the industry. We believe this combination will create significant value for our existing and new shareholders.”

Impact on earnings

The deal will be immediately accretive to cash flow per share. The pro forma margins are expected to increase by $0.45 per thousand cubic feet equivalent in 2016.

Other merger arbitrage resources

Other important merger spreads include the deal between Energy Transfer (ETE) and Williams Companies (WMB). For the basics on risk arbitrage investing, please refer to Merger arbitrage must-knows: A key guide for investors.

Investors who would like diversified exposure to the financial sector should look at the S&P SPDR Energy ETF (XLE).


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