Combined Company will own over 139,000 Net
Royalty Acres, normalized to a 1/8th royalty equivalent, over
105,000 of which are located in the Permian Basin
Projected to produce approximately 13,500 -
14,500 barrels of oil equivalent per day in 1H 2022 on a combined
basis
Summary:
- Combination creates a leading mineral and royalty company in
the U.S., positioned to become consolidator of choice for
large-scale, high-quality mineral and royalty positions, while
returning significant capital to shareholders
- Under the terms of the definitive agreement, Falcon will issue
235 million shares of Class C common stock to Desert Peak’s
equityholders
- Falcon’s existing shareholders will own approximately 27% of
the combined company, and Desert Peak’s equityholders will own
approximately 73%; transaction is expected to be accretive to
Falcon shareholders on a cash flow per share basis for 2022
- Combined company to be managed by the Desert Peak team, and
will be headquartered in Denver, Colorado
Desert Peak Minerals (“Desert Peak”) and Falcon Minerals
Corporation (NASDAQ: FLMN, FLMNW) (“Falcon”) announced today that
they have entered into a definitive agreement to combine in an
all-stock transaction which values the combined enterprise at $1.9
billion. The combination is expected to create a premier mineral
and royalty company at the front end of operators’ cost curves,
with low leverage, an emphasis on shareholder returns and a
significant footprint in the Permian Basin and Eagle Ford.
The combined company will remain focused on consolidating
high-quality mineral and royalty positions in the Permian Basin
while optimizing its existing asset base. It is positioned to
become a leading consolidator in the space through increased scale
and an experienced Board of Directors and management team with a
track record of consummating large, accretive acquisitions.
Governance Model and Alignment with
Stakeholders
The combined company will adopt an industry-leading governance
and compensation model. The components include a capital allocation
model balanced between return of capital to shareholders and
reinvestment for growth; aligning management with shareholders
through compensation and other factors; a strong balance sheet; a
culture of diversity and inclusion; and a commitment to acting as
responsible stewards for the environment. Management will not
receive cash incentive compensation, and the majority of equity
incentive compensation will be determined by absolute total
shareholder return over a three-year period.
The combined company will be managed by the Desert Peak team and
led by Desert Peak’s current Chief Executive Officer, Christopher
Conoscenti. Noam Lockshin, a Partner at Kimmeridge, Desert Peak’s
and the combined company’s largest equityholder, will serve as
Chairman of the Board of Directors. Following closing, the new
Board of Directors will consist of eight members, who are currently
expected to be: Noam Lockshin, Christopher Conoscenti, Erik Belz,
Allen Li, Claire Harvey, Steven Jones, Morris Clark and Alice
Gould.
Transaction Highlights
- Positions the combined company to be a leading consolidator in
the mineral and royalty space with increased scale and a Board of
Directors and management team with a proven track record of
successful M&A
- Combined company will have approximately 20 net wells
normalized to a 5,000 foot basis that have either been spud or
permitted. This inventory of line of sight wells provides
visibility into attractive organic production over the next 12
months
- Projected combined production of 13,500 – 14,500 barrels of oil
equivalent per day in 1H 2022, 50% - 53% of which is expected to be
crude oil and approximately 73% of which is expected to be from the
Permian Basin
- Capital allocation model balanced between return of capital to
shareholders and reinvestment for growth
- Shared commitment to developing industry-leading Environmental,
Social and Governance programs, including a management compensation
program focused on absolute total shareholder return
- Low leverage with combined net debt / annualized Q3 Adjusted
EBITDA of approximately 0.8x1 at September 30, 2021
- Competitive cost structure with an objective of driving cash
G&A costs per boe lower with additional consolidation with
limited incremental overhead expenses
Commentary
Chris Conoscenti, Chief Executive Officer of Desert Peak, said:
“We are excited to announce our merger with Falcon, which brings
together two premier liquids-weighted and geographically focused
asset bases to create a leading public minerals company with a
strong growth trajectory. We believe the ownership of Permian
minerals and royalties is trending toward larger-scale, more
efficient institutional ownership. Our strategy is to be the
leading consolidator of these high quality Permian assets. We
believe our scale is a clear strategic advantage in the minerals
business as we are able to drive down fixed costs per unit of
production with each acquisition, enhancing our cash margins. We
would like to thank the Board of Directors, management and
employees of Falcon for all of their efforts and partnership as we
have worked towards this announcement.”
Bryan Gunderson, President and Chief Executive Officer of
Falcon, said: “As we have previously communicated to our
shareholders, we believe scale matters in the minerals business, as
it enhances the ability to drive greater consolidation, improves
access to capital, and reduces volatility caused by asset
concentration. We are proud of the business our management team and
employees have built, and we are excited to partner with Desert
Peak to provide our shareholders with a significant increase in
scale and exposure to a large and diverse base of premier assets
across the Permian Basin.”
Claire Harvey, Chair of the Falcon Board and the Transaction
Committee said, “Over the last several months, with the assistance
of independent financial and legal advisors, Falcon has conducted a
thorough evaluation of a number of alternatives to maximize
shareholder value. Following our comprehensive review, we believe
that a combination with Desert Peak represents the best opportunity
to maximize value for Falcon’s shareholders.”
Transaction Details
At the closing, Desert Peak will become a subsidiary of Falcon’s
operating partnership (“OpCo”). The combined company will retain
Falcon’s “Up-C” structure, and Desert Peak’s equityholders will
receive 235 million shares of Class C common stock, which number
shall be adjusted in connection with the reverse stock split
described below, with voting rights in the combined company and a
corresponding number of limited partner units representing economic
interests in OpCo. Desert Peak’s equityholders may receive
additional equity consideration, subject to certain exceptions, to
the extent that, at the closing, Desert Peak’s net debt is less
than $140 million (based on a $5.15 per Falcon Class A share
price).
Upon completion of the transaction, assuming no adjustments to
the equity consideration for Desert Peak’s net debt, Desert Peak’s
equityholders will own approximately 73% and existing Falcon
shareholders will own approximately 27% of the combined company.
Based on the closing price of Falcon’s Class A common stock of
$5.45 on January 11, 2022, the combined company, including the
value of OpCo limited partnership units not owned by Falcon, will
have an initial equity market capitalization of approximately $1.76
billion and enterprise value of approximately $1.92 billion,
including Class A and Class C common stock.
Immediately prior to the closing of the transaction, subject to
the approval of Falcon’s shareholders, Falcon will execute a
1-for-4 reverse stock split. After giving effect to the reverse
stock split and the proposed merger, the aggregate number of shares
of Class A and Class C common stock outstanding is expected to be
approximately 80 million shares.
Transaction Committee
The combination was approved by a Transaction Committee of
Falcon’s Board of Directors (the “Falcon Board”) comprised solely
of disinterested directors, by the Falcon Board and by Desert
Peak’s equityholders.
The Falcon Board established a Transaction Committee, comprised
of independent and disinterested directors Claire Harvey, Chair of
the Falcon Board, William Anderson and Steven Jones, for the
purpose of evaluating certain strategic alternatives in which
affiliates of Blackstone may have an interest, including any
potential combination with Desert Peak.
The Transaction Committee was authorized to elect not to pursue
the proposed transaction with Desert Peak if it so chose, and the
Falcon Board provided that any proposed transaction with Desert
Peak would not proceed without the prior favorable recommendation
of the Transaction Committee.
Timing
The transaction is expected to close in the second quarter of
2022, subject to the approval of Falcon shareholders, certain
regulatory approvals and satisfaction of other customary closing
conditions. Blackstone, which currently owns 40.6% of the voting
power of Falcon, has entered into a support agreement obligating it
to vote in favor of the transaction.
Advisors
Barclays is serving as lead financial advisor to Falcon’s
Transaction Committee, and Houlihan Lokey also served as a
financial advisor to the Transaction Committee. Latham &
Watkins LLP is serving as Falcon’s legal counsel, and White &
Case LLP is serving as legal counsel to the Transaction Committee.
Vinson & Elkins LLP is serving as legal counsel to Desert Peak
and Kimmeridge.
Joint Investor Call
Desert Peak and Falcon will hold a joint investor conference
call on January 12, 2022 at 8:30 ET to discuss details of the
transaction. Participants for the conference call should dial (888)
567-1602 (International: (862) 298-0702). Presentation materials
will be available online in advance of the call on Falcon’s website
at https://ir.falconminerals.com/.
About the Companies
Desert Peak was founded by Kimmeridge, a private investment firm
focused on energy solutions, to acquire, own and manage
high-quality Permian Basin mineral and royalty interests with the
objective of generating cash flow from operations that can be
returned to shareholders and reinvested. Desert Peak has
accumulated over 105,000 net royalty acres (“NRAs,” when normalized
to a 1/8th royalty equivalent) through the consummation of over 175
acquisitions to date.
Falcon is an Up-C-Corporation formed to own and acquire
high-quality, oil-weighted mineral rights. Falcon owns mineral,
royalty, and over-riding royalty interests covering over 21,000
NRAs in the Eagle Ford Shale and Austin Chalk in Karnes, DeWitt,
and Gonzales Counties in Texas. The Company also owns over 12,000
NRAs in the Marcellus Shale across Pennsylvania, Ohio, and West
Virginia.
Important Additional Information Will
be Filed With the SEC
In connection with the proposed transaction, Falcon intends to
file a proxy statement with the Securities and Exchange Commission
(“SEC”) and also plans to file other relevant documents with the
SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ
THE PROXY STATEMENT (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS
THERETO) AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND
WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. You may obtain a free copy of the proxy statement (if
and when it becomes available) and other relevant documents filed
by Falcon with the SEC at the SEC’s website at www.sec.gov. You may
also obtain Falcon’s documents on its website at
www.falconminerals.com.
Participants in the
Solicitation
Falcon, Desert Peak, and their directors and executive officers
and other members of management and employees may be deemed to be
participants in the solicitation of proxies in respect of the
proposed transaction. Information about Falcon’s directors and
executive officers is available in Falcon’s proxy statement filed
with the SEC on April 23, 2021, for its 2021 annual meeting of
shareholders. Other information regarding the participants in the
proxy solicitations and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the definitive proxy statement and other relevant materials to be
filed with the SEC regarding the proposed transaction when they
become available. Investors should read the definitive proxy
statement carefully when it becomes available before making any
voting or investment decisions. You may obtain free copies of these
documents using the sources indicated above.
Forward-Looking
Statements
This news release includes certain statements that may
constitute “forward-looking statements” for purposes of the federal
securities laws. Forward-looking statements include, but are not
limited to, statements that refer to projections, forecasts, or
other characterizations of future events or circumstances,
including any underlying assumptions. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “seeks,” “possible,” “potential,”
“predict,” “project,” “prospects,” “guidance,” “outlook,” “should,”
“would,” “will,” and similar expressions may identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. These statements
include, but are not limited to, statements about Falcon’s and
Desert Peak’s ability to effect the transactions discussed in this
communication; the expected benefits and timing of the
transactions; future dividends; and future plans, expectations, and
objectives for the combined company’s operations after completion
of the transactions, including statements about strategy,
synergies, future operations, financial position, estimated
revenues, projected production, projected costs, prospects, plans,
and objectives of management. While forward-looking statements are
based on assumptions and analyses made by us that we believe to be
reasonable under the circumstances, whether actual results and
developments will meet our expectations and predictions depend on a
number of risks and uncertainties which could cause our actual
results, performance, and financial condition to differ materially
from our expectations. See “Risk Factors” in Falcon’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2020, as
amended on Form 10-K/A, and in Falcon’s Quarterly Reports on Form
10-Q, filed with the SEC for a discussion of risk factors that
affect our business. Any forward-looking statement made in this
news release speaks only as of the date on which it is made.
Factors or events that could cause actual results to differ may
emerge from time to time, and it is not possible to predict all of
them. Neither Desert Peak nor Falcon undertake any obligation to
publicly update any forward-looking statement, whether as a result
of new information, future development, or otherwise, except as may
be required by law.
1 Pro forma net debt/annualized Q3 Adjusted EBITDA includes (i)
pro forma Desert Peak net debt of $126.4 million and (ii) Falcon
net debt of $32.9 million for a pro forma combined total of $159.3
million net debt at September 30, 2021. Pro forma Adjusted EBITDA
of $51.1 million includes (i) $33.7 million for Desert Peak and
assumes all Desert Peak acquisitions consummated by September 30,
2021 were consummated on July 1, 2021 and (ii) asset level cash
flow (Adjusted EBITDA plus $2.7 in cash general and administrative
expenses) for Falcon of $17.4 million.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220111006154/en/
Desert Peak contact: Carrie Osicka Chief Financial Officer (720)
640-7651 Carrie.Osicka@desertpeak.com Falcon contact: Matthew B.
Ockwood Chief Financial Officer (713) 814-4657
mockwood@falconminerals.com Media contact: Daniel Yunger / Hallie
Wolff kekst-kimmeridge@kekstcnc.com
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