EGC - Energy XXI Gulf Coast

[Gregmal]

Opened small position at 8.92. Q3 close, all cash deal, IRR should be at least 12% or so depending on exact close date. Nothing crazy but this isn't some merger deal where you need to hang around 6-8 months to get the spread. 2 months tops.

[Foreign Tuffett]

What about the ex-CEO's malfeasance? Am I right in thinking it shouldn't have any bearing on the transaction closing? At first glance I don't see any reason to disagree with the company's PR.

 

https://ir.energyxxi.com/press-releases/detail/340/energy-xxi-gulf-coast-inc-provides-comments-on-todays

 

 

[Gregmal]

What about the ex-CEO's malfeasance? Am I right in thinking it shouldn't have any bearing on the transaction closing? At first glance I don't see any reason to disagree with the company's PR.

 

https://ir.energyxxi.com/press-releases/detail/340/energy-xxi-gulf-coast-inc-provides-comments-on-todays

 

Correct. Schiller was a bum, and ran the previous company into the ground. But he was removed from his position and has nothing technically to do with the new post bankruptcy company.

[Gregmal]

Update: Sold at 9 for 1% in 2 days. Remaining .6% per month is not worth my capital. Would look to re-enter mid 8.90's.

[writser]

Did you? Stock trading at $7.07 now after the 10 September filing in which the deal date was extended and Cox waived several termination clauses. Hard to handicap what is going on - most likely explanation is that Cox Oil has some problems financing the deal? Or does anyone have an alternative explanation?

 

Basically impossible for me to judge a) what is going on based on a three sentence filing and b) the value of EGC as a standalone company - never looked at it and oil is not my expertise. So I'm on the sidelines for now.

 

Market seems super skeptical about the deal closing. Interesting setup.

[Gregmal]

Did you? Stock trading at $7.07 now after the 10 September filing in which the deal date was extended and Cox waived several termination clauses. Hard to handicap what is going on - most likely explanation is that Cox Oil has some problems financing the deal? Or does anyone have an alternative explanation?

 

Basically impossible for me to judge a) what is going on based on a three sentence filing and b) the value of EGC as a standalone company - never looked at it and oil is not my expertise. So I'm on the sidelines for now.

 

Market seems super skeptical about the deal closing. Interesting setup.

 

Yea moved on and kind of forgot about this. This is another situation similar to RSYS. Don't blame the market. I'll have to look closer at this but as of now I have zero insight here.

[writser]

This is another situation similar to RSYS.

 

Nah. In the RSYS case there was no news at all - stock just went down after the merger announcement. In this case the filing from September, 10 definitely suggests that there are some problems. If everything was going according to plan Cox Oil would have closed the deal shortly after getting shareholder approval (as was the initial plan). At best there is a delay because lenders want to do some additional due diligence or the paperwork isn't quite ready yet. Worst case Cox wants to bail out or can't get financing at all.

[Gregmal]

This is another situation similar to RSYS.

 

Nah. In the RSYS case there was no news at all - stock just went down after the merger announcement. In this case the filing from September, 10 definitely suggests that there are some problems. If everything was going according to plan Cox Oil would have closed the deal shortly after getting shareholder approval (as was the initial plan). At best there is a delay because lenders want to do some additional due diligence or the paperwork isn't quite ready yet. Worst case Cox wants to bail out or can't get financing at all.

 

RE: RSYS I mean the background. Lots of negativity around the company, perception of dishonesty. Investors getting wiped out. I can't see how Cox can't get financing as this isn't a large deal. Perhaps they have gotten cold feet.

[writser]

I can't see how Cox can't get financing as this isn't a large deal.

 

With Cox Oil being private it's hard to say (at least for me) how big and how levered they are. Deal size is always relative to the acquirer. Just saying I'd be a bit more careful here. Might still be a good bet but there are some warning signs and for me it's basically impossible to handicap this situation given the lack of information and my ignorance on valuing EGC post-deal-fail.

[Gregmal]

I can't see how Cox can't get financing as this isn't a large deal.

 

With Cox Oil being private it's hard to say (at least for me) how big and how levered they are. Deal size is always relative to the acquirer. Just saying I'd be a bit more careful here. Might still be a good bet but there are some warning signs and for me it's basically impossible to handicap this situation given the lack of information and my ignorance on valuing EGC post-deal-fail.

 

Like RSYS, you want no part of a stand alone EGC IMO. Basically a deepwater SD.

[Foreign Tuffett]

I agree that it's unclear what's going on here. Maybe Cox is struggling to close on financing?

 

Cox almost certainly carries significant debt already. It bought properties from Chevron in 2015 and Freeport last year. Both those deals were probably large relative to its size.

 

EGC is also leveraged via huge asset retirement obligations. So anyone who was playing the merger arb game here was probably already skittish and ready to sell at the first sign of problems.

 

Might be an opportunity for someone with tener cojones. I'll be on the sidelines.

[writser]

Like RSYS, you want no part of a stand alone EGC IMO. Basically a deepwater SD.

 

I try not to discard companies outright. Everything has its price. On the positive side, Orinoco proposed a transaction in May (and has filed a complaint against EGC for breaching the term sheet) and after that announcement the stock traded higher than it currently does - with oil prices more or less equal afaik. Maybe that proposal is still on the table if the Cox deal fails (then again, maybe not). This might be worth a shot but I have cojones muy pequeno or whatever - my Spanish being awful.

[writser]

Interesting price action for sure. After several ~10% down days today the stock opens up ~20% on what I would say is basically some boilerplate press release without any information. After the open it immediately drops 10% and now back to $7.20. Efficient market ..

[writser]

And back at $8.40. Maybe I'm missing some court filings / other news but I haven't found anything. The price action has been absolutely nuts.

[writser]

An update today:

 

Since the merger agreement amendment was signed in early September, Cox regularly provided EGC with detailed status updates, including that definitive documents, including definitive financing documents, are nearly complete. Based on Cox’s status updates, the companies have agreed to extend the required closing date to October 17, 2018.

 

This extension is not a waiver of obligations under the merger agreement. The closing of the transaction is not subject to a financing condition.

 

FWIW I think that sounds pretty solid. Price action is still very suspicious though. I couldn't help myself. Bought a few shares.

[writser]

Looks like I dodged another bullet (link).

EGC previously announced on October 10, 2018 that EGC and Cox jointly agreed to extend the closing date of the merger to October 17, 2018.

 

EGC and Cox began the closing process at 7:15 a.m. Central Time this morning and expect to complete the merger within the next few hours.

 

Crazy price action, even today. Premarket low of $7.10 or something. Now trades now at ~$8.95 which is still decent if you think the deal closes soon.