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CVR Refining Surged 8% on Exchange Offer from CVR Energy

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Nov. 20 2020, Updated 10:38 a.m. ET

Exchange offer

On May 29, CVR Energy (CVI), the holding company of CVR Refining (CVRR), announced its intention to exchange shares of CVR Energy for 37 million common shares of CVR Refining. The exchange offer of $27.63 per share represents a 25% premium over CVR Refining’s closing price on May 25. The exchange ratio for the offer is one share of CVR Refining for 0.6335 shares of CVR Energy stock.

CVR Energy expects to own more than 80% of CVR Refining shares after the acquisition is completed. Under the agreement, once CVR Energy owns more than 80% of CVR Refining shares, it will have the right to purchase all the common shares of CVR Refining.

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Rationale

CVR Energy believes that due to recent changes in MLP taxation, CVR Refining investors may prefer common stock over MLP interests. The exchange offer provides them the opportunity to convert their MLP interests into CVR Energy stock.

The exchange offer will increase CVR Energy’s ownership of CVR Refining. Currently, CVR Energy and its affiliates own ~69.8% of the common shares of CVR Refining. If the exchange offer is exercised for the full ~37.1 million shares, CVR Energy and its affiliates will hold ~95% of the outstanding shares of CVR Refining.

CVR Refining stock

CVR Refining stock surged 8% on May 29 following the announcement of the exchange offer. It closed at $23.95. CVR Energy, on the other hand, fell 9%.

Of the eight Reuters-surveyed analysts covering CVR Refining, two have rated the stock a “strong buy,” one has rated it a “buy,” and five have rated it a “hold.” CVR Refining has risen 48% year-to-date.

Let’s take a look next at Dorchester Minerals (DMLP), another MLP that posted handsome gains in 2018.

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