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In the merger of the equals, Devon Energy and WPX Energy have joined hands to float a single entity valued at $12 billion approximately. The merger will be completed by the first quarter of 2021.
On Monday, September 28, oil industry giants Devon Energy Corporation (NYSE: DVN) and WPX Energy Inc (NYSE: WPX) announced an all-stock merger deal. The merger involves a combined capital structure consisting of $6 billion in debt, $6 billion in equity, and 525,000 barrels per day of oil.
The combined entity will work under the name Devon Energy and will bring along newly added benefits. This includes a higher enhanced scale of operations, higher free cash flow, and also improved margins. With the Coronavirus pandemic, the oil and energy industry has been hit very hard as global travel came to a standstill during Q2 2020.
Additionally, the oil war between OPEC and non-OPEC earlier this year added more fuel to the damage. Oil prices in the global markets have tanked to an extent that even big companies are finding it difficult to continue operations. The merger between Devon and WPX will certainly help both companies to absorb the market blows.
As per the terms of the agreement, WPX shareholders will receive 0.5165 shares of Devon for each share of WPX. The press release notes that the total enterprise value of the combined entity will be around $12 billion. Also, Devon shareholders will hold 57 percent of the combined entity while WPX shareholders will get 43%. The two companies will finalize the merger transaction by the first quarter of 2021. Speaking about the merger, Dave Hager, Devon’s president and CEO said:
“This merger is a transformational event for Devon and WPX as we unite our complementary assets, operating capabilities and proven management teams to maximize our business in today’s environment, while positioning our combined company to create value for years to come”.
Devon Energy and WPX Energy Stocks Shoot
Soon after the merger announcement on Monday, stock prices for Devon Energy (NYSE: DVN) and WPX Energy (NYSE: WPX) jumped on the indices. The DVN stock jumped 11.11% closing the trading at $9.80 per share. The WPX stock also jumped 16.31% closing at $5.17 per share.
The Devon Energy stock is still trading 60% down year-to-date. However, from its March 2020 bottom, the stock has recovered nearly 80%. Similarly, the WPX stock is also trading 60% negative year-to-date. Hopefully, the merger will help both the companies to sail through one of the most testing times for the oil industry. Rick Muncrief, WPX’s chairman and CEO said:
“This merger-of-equals strengthens our confidence that we will achieve all of our five-year targets outlined in late 2019. The combined company will be one of the largest unconventional energy producers in the U.S.”
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