Merger Monday Vindicated This Analyst Who Nailed BP's Offer Price As Energy M&A Heats Up

Zinger Key Points
  • A Wells Fargo analyst correctly predicted Archaea would appreciate to $25 per share.
  • Continental Resources will be acquired by its founder, Harold Hamm.
Merger Monday Vindicated This Analyst Who Nailed BP's Offer Price As Energy M&A Heats Up

On Oct. 4, Wells Fargo & Co. WFC analyst Michael Blum initiated coverage of Archaea Energy Inc. LFG with an Overweight rating and a price target of $25 per share.

About two weeks later, BP BP purchased Archaea for approximately $26 per share of class A and class B shares in cash, for a total deal value of $4.1 billion, including about $800 million of net debt.

Blum, turns out, touts an accuracy rating of 75%, according to Benzinga’s Analysts Ratings Calendar.

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Archaea, one of the largest renewable natural gas (RNG) producers in the U.S., has a highly visible six to eight-year growth outlook underpinned by a project backlog of 88 RNG facilities.

Archaea plans to increase the percentage of contracted RNG from 50% to 70% over time to improve the stability of its cash flows, the anlysts noted.

RNG demand in the U.S. is projected to grow at a double-digit compounded annual growth rate (CAGR) through the end of the decade driven by corporate, government, and utility decarbonization goals, which establishes the five-year EBITDA growth forecast of 47% (CAGR), Blum noted.

BP is expected to provide Archaea with capital resources to accelerate growth, while Archaea will get access to BP’s broad customer base. These synergies will aid BP’s decarbonization goals while allowing the company to transition its bioenergy segment and bolster Archaea’s growth abroad.

Archaea wasn't the only energy company that was sold on Monday.

Continental Resources Inc. CLR announced a deal with Omega Acquisition, an entity owned by fracking entrepreneur Harold Hamm.

Hamm, who already owns about 83% of Continental, made a tender offer to purchase roughly 58 million shares of Continental's common stock at $74.28 per share, giving Continental a value of about $27 billion.

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The offer price represents a 15% premium to the closing price of Continental’s common stock of $64.50 per share as of June 13, before Hamm announced the purchase.
Hamm previously offered to buy Continental for $70 per share on June 14. Going private, he says, “will enhance" the company's ability to maintain its "competitive edge."

Continental’s projected 2022 return on capital employed is increasing to 32% from 31%.

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