corrected: BP Amoco wins Vastar board support for minority buyout
BP Amoco PLC said on Wednesday it has won approval from Houston-based Vastar Resources Inc.'s board of directors to acquire the 18.1% of Vastar it doesn't already own. BP Amoco proposes to buy the 17.7 million shares of Vastar stock for $1.47 billion, or $83/share.
The original version of this story stated that Crazy Horse field could contain as much as 1 million boe of recoverable reserves. This revised version lists the figure correctly as 1 billion boe.
BP Amoco PLC said on Wednesday it has won approval from Houston-based Vastar Resources Inc.'s board of directors to acquire the 18.1% of Vastar it doesn't already own. BP Amoco proposes to buy the 17.7 million shares of Vastar stock for $1.47 billion, or $83 per share.
BP Amoco acquired 81.9% of Vastar's shares through its recently completed acquisition of ARCO. It had offered to acquire the remaining 18.1% holding in Vastar while the ARCO acquisition was pending.
BP Amoco raised its offer from the initial $71/share, made Mar. 16. The new, significantly higher figure resulted from negotiations between BP Amoco and a special committee set up by Vastar.
Closing is contingent on approval by the holders of at least two-thirds of the Vastar shares not held by BP Amoco, at a meeting to be scheduled for this summer.
W. Mark Meyer, an energy analyst with Houston-based boutique investment company Simmons & Co. International, says he and other financial analysts aren't surprised that BP Amoco raised its offer or that BP Amoco would try to bring Vastar completely into its fold. The higher offer is a more fairly priced one, according to Simmons's unofficial evaluations of Vastar, Meyer says.
Vastar's latest deepwater successes, its 15.8% return rate on capital in 1998, and assets in deepwater Gulf of Mexico all make the company an attractive acquisition. It also complements the onshore Midcontinent properties and other assets owned by the former Amoco Corp., which was acquired by British Petroleum PLC in late 1998.
The synergies of BP Amoco's and Vastar's properties, Meyer says, should create a company with a "great cash flow engine," particularly in the deepwater Gulf, where BP Amoco is already a top producer. BP Amoco's cash flow needs are expected to rise as it begins developing capital-intensive properties such as the Crazy Horse prospect in the deepwater Gulf of Mexico. Located in 6,000 ft of water in the Boarshead basin about 125 miles southeast of New Orleans, BP Amoco says Crazy Horse could hold up to 1 billion boe of recoverable reserves.
Adding Vastar's personnel to its employee roster could also give BP Amoco an edge, Meyer says, if those employees can successfully meld with BP Amoco's large corporate structure after working in the entrepreneurial environment of an independent exploration and production company. "They're a good group," Meyer says. "The question is, will they be motivated in the BP organization?"
Vastar was among the few companies who were capable of posting $3/share earnings a couple of months ago, Meyer says. Vastar's recognition that shareholders now gauge a stock's value by its rate of return, rather than by the company's cash flow, and its "sophisticated programs" to ensure a strong rate of return the past several years have helped Vastar's stock to triple in value since its initial public offering (OGJ Online, Apr. 30, 2000).