PHX Minerals executives have been largely silent on potential M&A after WhiteHawk Energy went public with a proposal to merge the two minerals players.
Just prior to PHX Minerals Inc.’s quarterly earnings conference call the morning of Aug. 9, WhiteHawk Energy LLC published a letter proposing a stock-for-stock merger between WhiteHawk and PHX; the letter was addressed to Mark Behrman, the chairman of PHX’s board of directors.
The public communication comes after WhiteHawk said it made several unsuccessful attempts to productively engage with the PHX Minerals board and management.
The PHX board will review WhiteHawk’s public letter and evaluate the proposal carefully, PHX President and CEO Chad Stephens said on the call.
“At this time, we have nothing further to say about this matter and we will not be taking questions regarding WhiteHawk’s expression of interest,” Stephens said.
Speaking generally about large-scale M&A, Stephens said the PHX board will look at any and all inbound opportunities sincerely.
“To protect our shareholders, we want to make sure that any proposal is [net asset value]-accretive and is in the best interests of the shareholders,” he said. “That’s always, I guess, the main hurdle—is it the best deal, the right deal for our shareholders from a value perspective?”
Ralph D’Amico, senior vice president and CFO at PHX, said the company evaluates rock quality, proximity to the core of the play and an operator’s future development plans when considering potential M&A.
PHX Minerals has an enterprise value of approximately $138.3 million and a market capitalization of $115.8 million, according to investor materials.
Designing a deal
WhiteHawk highlighted several key points of the potential merger that it believes will benefit PHX shareholders: The deal would create a publicly traded minerals and royalties player with a combined footprint in the Lower 48’s premier natural gas basins, including the Marcellus and Haynesville shales.
WhiteHawk has a portfolio of 850,000 gross unit acres in the Marcellus and Haynesville, and the company owns interests in more than 2,500 producing horizontal wells.
PHX Minerals has a gas-weighted portfolio of nearly 92,000 net leased royalty acres, the company laid out in its latest earnings presentation.
PHX has a large footprint in the SCOOP and STACK plays in Oklahoma, as well as in the gassy Haynesville. The company also has mineral and royalty interests in the Bakken and Fayetteville plays.
PHX closed acquisitions on 151 net royalty acres for $1.8 million during its third fiscal quarter ended June 30, including 144 purchased in the SCOOP play and seven purchased in the Haynesville.
WhiteHawk is expanding its own portfolio in the Haynesville. Earlier this week, the company announced drawing $20 million of a $100 million acquisition finance facility to scoop up Haynesville mineral and royalty assets from Mesa Minerals Partners II LLC.
Earlier this year, WhiteHawk announced a $105 million acquisition of Haynesville mineral and royalty interests.
Other benefits of a merger identified by WhiteHawk include an increased stockholder payout ratio of 50% to 60% of distributable cash flow; increasing the dividend by more than 100%; and immediate accretion to PHX’s distributable cash flow per share.
A potential deal between WhiteHawk and PHX could also yield about $4 million in G&A synergies per year. The combined entity would be led by the WhiteHawk management team, WhiteHawk said in the proposal.
Under the terms of WhiteHawk’s proposal, PHX stockholders would own approximately 61% of the combined company WhiteHawk Minerals Corp. Shareholders of WhiteHawk would also receive a one-time cash dividend of $0.20 per share.
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