After making a smaller offer a month ago, Chevron publicized a plan to buy the Noble Midstream Partners LP shares it does not currently own. With a price tag of $1.32 billion, the deal’s architecture directs 0.1393 Chevron shares to Noble Midstream’s unitholders.
In an offer announced in February, Chevron expected Noble Midstream shareholders would gain $12.47 per share. After a closing price last week, that per-share price has increased over $2 per share to $14.55 for a finalized amount.
What is an all-stock deal?
Common to merger and acquisition dealings, the shareholders of target companies acquire shares as a payment type in lieu of cash. Often shareholders prefer this method over a cash settlement. All-stock transfers are also commonly implemented when companies making the purchase lack the cash assets to pay stockholders.
With the good comes the bad. Share values can decrease or fall; therefore, all-stock deals can involve additional financial risk. Additionally, share values of the companies making the acquisition can be either higher or lower than those of the target company.
Viable takeover
Appearing to be a slam dunk in the game of merger and acquisitions, many are betting big. Credit Suisse analyst, Manav Gupta, raised the price target of the stock from $110 to $115 and maintained a Buy rating.
“Chevron is fully committed to dividend growth and even buybacks,” said Gupta.
Making projections based on his own market estimates, Gupta anticipates Chevron will generate a voluntary flow of cash this year exceeding $4.5 billion. Based on 10 Buys versus 3 Holds, the overall opinion of analysts is a Strong Buy.
With a price target holding at $107.42, analysts imply the potential downside of 1.5% to current levels over the next year while shares have increased an impressive 35% over the previous year.
Unanimous approval
With a makeup of all independent directors, the Conflicts Committee of the Board tapped its legal and financial team for input. Due to their approval and support, the Board unanimously approved the acquisition.
“We believe this buy-in transaction is the best solution for all stakeholders, enabling us to simplify the governance structure and capture value in support of our leading positions in the DJ and Permian Basins,” said Colin Parfitt, Vice President of Chevron Midstream and Chairman of the Board of Directors of the general partner of Noble Midstream.
Advisory oversight
Bringing in the heavy hitters, the Chevron/Noble Midstream deal is surrounded by some of the most respected names in the business and financial world:
Citi is serving Chevron in a financial advisory role.
Latham and Watkins LLP is acting legal representation for Chevron.
Janney Montgomery Scott is positioned as the financial advisor to the Conflicts Committee of the Board.
Baker Botts L.L.P. is acting legal representation for the Conflicts Committee of the Board as well.
Down the road
Looming in the second quarter, this new deal’s value will be determined by the price of Chevron’s shares when the deal itself is inked into completion. While Noble Midstream’s margins saw a decrease, Chevron’s shares were up 2.4% about a week ago.
Adding to its stake made of Noble Energy for $4.1 billion in another all-stock deal, Chevron will gain almost 63% of Noble Midstream that will further diversify an already stable and effective strategy parallel with natural gas reserves on a global scale.
