The deal to buy the largest producer of U.S. natural gas also has Exxon assuming $10 billion of debt
By Jim Polson
(Bloomberg) — Exxon Mobil Corp. (XOM), the biggest U.S. oil company, agreed to buy XTO Energy Inc. for $31 billion in a bet that U.S. emissions restrictions will spur increased demand for natural gas.
Owners of Fort Worth, Texas-based XTO (XTO) will get 0.7098 share of Exxon for each of their shares, the companies said today in a statement. The transaction, the largest energy acquisition since 2006 and Irving, Texas-based Exxon's biggest takeover since the purchase of Mobil Corp. in 1999, values XTO at $51.69 a share, 25 percent higher than its last closing price.
"This says that corporate M&A is alive and well in the exploration and production sector," said Curtis Trimble, an analyst at Natixis Bleichroeder Inc. in Houston. "It also says that Exxon isn't shy about stepping up their exposure to the natural-gas market. Almost certainly, we will see some more follow-the-leader type transactions."
Exxon, which also will assume $10 billion in debt, will get the largest producer of U.S. natural gas. Demand for the fuel will grow as U.S. carbon legislation prompts power producers to switch from coal, Kenneth Cohen, Exxon's vice president for government affairs, said in a Dec. 7 interview.
XTO rose $7.69, or 19 percent, to $49.18 at 8:53 a.m. New York time in trading before U.S. exchanges opened. Exxon fell $1.53 to $71.30.
The purchase is scheduled to close in the second quarter, the companies said. JPMorgan Chase (JPM) advised Exxon Mobil. Barclays (BCS), and Jefferies & Co. advised XTO.
XTO's output jumped 23 percent to the equivalent of 2.95 billion cubic feet of gas a day after a $4.2 billion acquisition spree last year that included Hunt Petroleum Corp. The company raised its forecast for full-year production growth to 23 percent from an August estimate of 20 percent. Third-quarter revenue rose 8 percent to $2.29 billion.
"There very little in the way of really good reserves out there," said Stephen Leeb, who manages $175 million as president of Leeb Capital Management in New York. "If you want reserves you can count on, you really have to buy domestic reserves, or reserves in countries that are, you know, trustworthy, and XTO has a lot of wonderful domestic reserves, especially, I think, in the gas area."
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