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Range Resources to Acquire Memorial Resource for $4.4B

Independent oil and gas company Range Resources Corp. RRC announced that it would acquire Memorial Resource Development Corp. MRD in an all-stock transaction valued at $4.4 billion. The transaction is expected to close in the second half of 2016.

Per the agreement, Memorial Resource shareholders will receive 0.375 shares of Range Resources’ common stock for each share held. Based on Range Resources’ closing price on May 13, 2016, the transaction has a value of $15.75 per share for Memorial Resource shareholders. This represents a 17% premium to the closing price of the Memorial Resource stock. This valuation includes the assumption of Memorial Resource's net debt, which was $1.1 billion as of Mar 31, 2016.

After the merger, Memorial Resource’s shareholders would own approximately 31% stake of the company. The transaction has already been approved by the boards of both companies.

Range Resources’ diversified asset portfolio is spread between low-risk/long reserve-life Appalachian assets and large-volume/rapid-payout Gulf Coast properties. The company has an impressive inventory in the Marcellus Shale, one of the prominent emerging shale plays in the U.S. Lower 48. The company is advantageously positioned to benefit in the long run from these projects. Given its dominant position in the Marcellus Shale play and its continuous endeavor to control costs, we believe that Range Resources will be capable of long-term shareholder value creation.

Looking forward to the second quarter, the company estimates production of 1.410 billion cubic feet equivalent (Bcfe) per day, of which liquids are expected in the 32–35% range. The company anticipates direct operating expenses in the range of $0.22–$0.23 per Mcfe. Transportation, gathering and compression expenses are expected in the range of $1.03–$1.05 per Mcfe, while exploration expenses are projected in the $5–$7 million range.

Currently, Range Resources carries a Zacks Rank #4 (Sell). Some better-ranked players from the energy sector are Transocean Partners LLC RIGP and Braskem S.A. BAK. Both these stocks sport a Zacks Rank #1 (Strong Buy).

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TRANSOCEAN PTN (RIGP): Free Stock Analysis Report
BRASKEM SA (BAK): Free Stock Analysis Report
RANGE RESOURCES (RRC): Free Stock Analysis Report
MEMORIAL RESRC (MRD): Free Stock Analysis Report
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