(Bloomberg) -- SandRidge Energy Inc., succumbing to a campaign led by activist investor Carl Icahn, gave up on its proposed purchase of rival oil and natural gas explorer Bonanza Creek Energy Inc.
After consultation with its largest shareholders, the company’s board concluded it wouldn’t receive approval for the transaction at its planned special meeting, SandRidge said Thursday in a statement. SandRidge will reimburse as much as $3.7 million to Bonanza Creek for transaction-related expenses. The shares gained as much as 1.9 percent in after-hours trading.
“We’re obviously pleased with the result but we still have grave concerns about many of the things that the board has permitted to happen at the company,” Icahn said in an interview after the announcement.
SandRidge announced the planned acquisition, initially valued at about $750 million, on Nov. 15. A week later, Icahn, who owns a 13.5 percent stake, blasted the deal as overpriced. Fir Tree Partners Inc. said this month it was joining Icahn in opposing the takeover.
“We believe SandRidge would better position itself by returning capital to its shareholders and growing production in a disciplined manner, not through pursuing this reckless transaction,” Fir Tree wrote in its letter.
Icahn filed a proxy on Dec. 15 calling on stockholders to vote against issuing new shares for the takeover, but hadn’t decided whether to pursue board seats at the company. He was particularly annoyed by the company’s support for a poison pill that would limit his ability to oppose the takeover, and was happy when SandRidge backed down from the provision in a written agreement that allowed him to discuss his opposition to the deal with other shareholders.
“The strategic direction is now up for debate,” Cowen & Co. wrote in a research note on Friday. “The likelihood of capital returns to shareholders has increased.”
In terms of future possible deals, Cowen said Midstates Petroleum Co. was a “logical candidate” to eventually merge with SandRidge given both companies have operations in the Mississippian Lime play. A call to Midstates Petroleum wasn’t immediately returned.
The Bonanza deal would have netted SandRidge 67,000 acres in the Denver-Julesburg Basin in Colorado. Its bid represented a 17.4 percent premium over Bonanza’s closing price the day before the announcement, SandRidge had said.
The deal would have increased company cash flows by 15 percent next year and earnings per barrel of oil by 21 percent, SandRidge had said in a letter obtained by Bloomberg News. The acquisition would have given SandRidge ready-to-drill assets to balance a portfolio that now consists of declining wells or land still in the early phases of development, according to the letter.
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