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The stock of Fort Worth-based Encore Acquisition Co. jumped 20.5 percent Monday after Plano-based Denbury Resources announced plans to acquire the oil and natural gas exploration and production firm in a deal valued at $4.5 billion.
Denbury stock (ticker: DNR) fell 10.3 percent, however, and Moody’s Investors Service placed its credit ratings for the energy firm under review for possible downgrade. Moody’s cited the added debt the company would take on in making the acquisition, which still requires shareholder approval. The deal isn’t expected to be closed until late in the first quarter of 2010.Encore (EAC) closed at $44.67, up $7.60, on a trading volume of 9.9 million shares. Denbury closed at $13.09, down $1.51, on a volume of 15.9 million shares. An Encore affiliate that would be part of the deal, Encore Energy Partners LP (ticker: ENP) closed at $17.98, down 2 cents.The deal would create one of the largest independent energy producers in North America that is primarily focused on oil rather than natural gas. Encore and Denbury have been focused on oil production, rather than natural gas, in contrast to many U.S. independent exploration and production firms.Challenge to acquisitionThe acquisition was challenged Monday in a statement by Harwood Feffer LLP, a law firm with a New York City office.It specializes in litigation involving securities and shareholder issues. Feffer said Encore "may not have adequately shopped itself around before entering into this transaction" and Denbury "may be underpaying for Encore . . . thus unlawfully harming" shareholders of the Fort Worth company.Encore did not reply to a request for a response to the law firm’s comments.Praise for dealIn a conference call with investment analysts Monday, Denbury CEO Phil Rykhoek said, "We’re obviously excited about this deal for many reasons."He said Encore’s extensive lease holdings in the Rocky Mountains and the Bakken Shale of western North Dakota and eastern Montana are particularly attractive. The acquisition will buttress Denbury’s emphasis on injecting carbon dioxide into geological formations in old oilfields to enhance oil recovery, he said.Rykhoek indicated that most Encore employees would have a chance to work for Denbury, although many probably would be eventually shifted to Denbury’s Plano headquarters.Encore, which has about 425 employees, including about 225 in Fort Worth, is headquartered in Carter Burgess Plaza downtown.Encore CEO Jonny Brumley said, "This deal makes a lot of sense. . . . We’re really proud to be part of it." Brumley said Encore already was transitioning to a greater focus on enhanced oil recovery.Plano corporate baseThe Denbury and Encore boards have approved the deal. If the transaction is completed, Denbury stockholders would own about two-thirds of the company and Encore shareholders about one-third.The company would retain Denbury’s name and Plano headquarters.
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