Vanguard Natural Resources, LLC (NYSE: VNR) (“Vanguard”) and
Encore Energy Partners LP (NYSE: ENP) (“Encore”) today announced
the execution of a definitive agreement that would result in a
merger whereby Encore would become a wholly-owned subsidiary of
Vanguard’s operating company, Vanguard Natural Gas, LLC, through a
unit-for-unit exchange. Under the terms of the definitive
agreement, Encore’s public unitholders would receive 0.75 Vanguard
common units in exchange for each Encore common unit they own at
closing, representing a premium of approximately 4.4% based on the
closing prices of Encore common units and Vanguard common units on
March 24, 2011, the last trading day before Vanguard announced its
initial proposal to acquire all of the common units of Encore owned
by the public and an approximately 51% premium over the December
31, 2010 purchase price paid to Denbury Resources, Inc. (NYSE: DNR)
for 45.6% of the Encore common units. The transaction would result
in approximately 18.4 million additional common units being issued
by Vanguard. The terms of the definitive agreement were unanimously
approved by the members of the Encore Conflicts Committee, who
negotiated the terms on behalf of Encore and is comprised solely of
independent directors. In addition,
Jefferies & Company, Inc., has issued a fairness
opinion to the Encore Conflicts Committee stating that they believe
the exchange ratio is fair, from a financial point of view, to the
unaffiliated unitholders of Encore. The members of the Vanguard
Conflicts Committee, which is also comprised solely of independent
directors, negotiated the terms on behalf of Vanguard and also
voted unanimously in favor of the merger. In addition, RBC Capital
Markets has issued a fairness opinion to the Vanguard Conflicts
Committee stating that they believe the exchange ratio is fair,
from a financial point of view, to Vanguard.
“We are pleased to announce our agreement to combine these two
companies in a transaction that would simplify our commercial
activities and organizational structure as well as lower our
overall cost of capital,” said Scott W. Smith, president and chief
executive officer of Vanguard.
The merger is expected to provide benefits to current Vanguard
unitholders by, among other things:
- streamlining Vanguard’s organizational
structure, which enhances transparency for investors, while also
reducing operating complexity and the company’s overall cost of
capital;
- creating an enterprise of significantly
increased size and scale, improved overall operating reach and
greater cash flow stability;
- realizing meaningful cost synergies
primarily from eliminating public company expenses associated with
Encore;
- expanding geographic reach and
diversification from an operational and employee perspective, which
should improve Vanguard’s ability to compete more aggressively for
future acquisitions; and
- maintaining Vanguard’s strong credit
profile and liquidity position by completing the merger on the
basis of an all-equity, unit-for-unit exchange.
“We fully support the combination of these two successful
companies,” said John Jackson, chairman of the Encore Conflicts
Committee. “We believe Encore’s public unitholders will benefit
from Vanguard’s future growth potential.”
The merger is expected to benefit Encore’s public unitholders
by, among other things:
- providing Encore unitholders with a
premium of approximately 4.4% through the exchange of 0.75 Vanguard
common units for each Encore common unit based on the closing
prices of Encore and Vanguard common units on March 24, 2011, the
last trading day before Vanguard announced its initial proposal to
acquire all of the common units of Encore owned by the public and
an approximately 51% premium over the December 31, 2010 purchase
price Vanguard paid to Denbury Resources, Inc. for 45.6% of the
Encore common units;
- eliminating the administrative services
agreement, which currently requires Encore to pay an annual fee of
approximately $6.5 million to its general partner in connection
with providing certain administrative services;
- providing Encore unitholders with
ownership in a much larger and more diverse entity with an
enterprise value of approximately $2.0 billion that has a stronger
balance sheet and is capable of pursuing significantly larger and
more meaningful growth opportunities; and
- providing Encore unitholders with an
opportunity to benefit from potential future unit price
appreciation and increased cash distributions through ownership of
Vanguard common units.
The completion of the merger is subject to approval by a
majority of the outstanding Encore common units. Vanguard’s
operating company, Vanguard Natural Gas, LLC, already owns Encore’s
general partner and approximately 45.6% of the Encore outstanding
common units and has also executed the definitive agreement between
Vanguard and Encore. The completion of the merger is also subject
to the approval of the issuance of additional Vanguard common units
in connection with the merger by the affirmative vote of a majority
of the votes cast by Vanguard unitholders. Completion of the
merger, assuming the requisite unitholder votes are obtained and
subject to other customary terms and conditions, is expected to
occur during the fourth quarter of 2011. Distributions will
continue to be paid by each company pursuant to their own cash
distribution policies while the merger is pending.
Jefferies & Company, Inc. issued a fairness
opinion to the Encore Conflicts Committee. RBC Capital Markets
issued a fairness opinion to the Vanguard Conflicts Committee.
Legal advisors for this transaction are Vinson & Elkins LLP for
Vanguard, Potter Anderson & Corroon LLP for the Vanguard
Conflicts Committee, and Bracewell & Giuliani LLP and Richards,
Layton & Finger, P.A. for the Encore Conflicts Committee.
About Vanguard Natural Resources, LLC
Vanguard Natural Resources, LLC is a publicly traded limited
liability company focused on the acquisition, production and
development of natural gas and oil properties. The company’s assets
consist primarily of producing and non-producing natural gas and
oil reserves located in the southern portion of the Appalachian
Basin, the Permian Basin, and South Texas. In addition, Vanguard
owns, through its wholly-owned subsidiary Vanguard Natural Gas,
LLC, 100% of the general partner of Encore and approximately 46% of
the outstanding common units of Encore. More information on
Vanguard can be found at www.vnrllc.com.
About Encore Energy Partners LP
Encore Energy Partners LP is a publicly traded master limited
partnership focused on the acquisition, production, and development
of oil and natural gas properties. Encore’s assets consist
primarily of producing and non-producing oil and natural gas
properties in the Big Horn Basin in Wyoming and Montana, the
Williston Basin in North Dakota and Montana, the Permian Basin in
West Texas and New Mexico, and the Arkoma Basin in Arkansas and
Oklahoma. More information on Encore can be found at
www.encoreenp.com.
INVESTOR NOTICE
In connection with the proposed merger, a registration statement
of Vanguard, which will include a joint proxy statement of Vanguard
and of Encore, a prospectus and other materials, will be filed with
the Securities and Exchange Commission (“SEC”). INVESTORS AND
SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION
STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS AND THESE OTHER
MATERIALS REGARDING THE PROPOSED TRANSACTION WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
VANGUARD, ENCORE AND THE PROPOSED MERGER. A definitive joint proxy
statement/prospectus will be sent to the unitholders of Encore
seeking their approval of the proposed merger and to the
unitholders of Vanguard seeking approval of the issuance of the
Vanguard common units in the proposed merger. Investors and
unitholders may obtain a free copy of the joint proxy
statement/prospectus (when it is available) and other documents
containing information about Vanguard and Encore, without charge,
at the SEC’s website at www.sec.gov.
Vanguard, Encore and Encore’s general partner, and their
respective directors and certain of the respective executive
officers of Vanguard and Encore’s general partner, may be deemed to
be “participants” in the solicitation of proxies from the
unitholders of Vanguard or Encore, as the case may be, in
connection with the proposed merger. Information about the
directors and executive officers of the general partner of Encore
is set forth in Encore’s Annual Report on Form 10-K for the year
ended December 31, 2010, which was filed with the SEC on March 1,
2011. Information about the directors and executive officers of
Vanguard is set forth in Vanguard’s Annual Report on Form 10-K for
the year ended December 31, 2010, which was filed with the SEC on
March 8, 2011. These documents can be obtained free of charge from
the sources listed above. Other information regarding the persons
who may be “participants” in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, will be contained in the joint proxy
statement/prospectus and other relevant materials to be filed with
the SEC when they become available.
FORWARD LOOKING STATEMENTS
This document includes “forward-looking statements” as defined
by the SEC. All statements, other than statements of historical
fact, included herein that address activities, events or
developments that Vanguard or Encore expects, believes or
anticipates will or may occur in the future, including anticipated
benefits and other aspects of the proposed merger, are
forward-looking statements. These forward-looking statements are
subject to risks and uncertainties that may cause actual results to
differ materially, such as the required approvals by unitholders
and regulatory agencies, the possibility that the anticipated
benefits from the proposed merger cannot be fully realized, and the
impact of competition, regulation and other risk factors included
in the reports filed with the SEC by Vanguard and Encore. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. Except as required
by law, neither Vanguard nor Encore intends to update or revise its
forward-looking statements, whether as a result of new information,
future events or otherwise.
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