Devon and Mitchell to amend merger pact to reflect stock prices

By the OGJ Online Staff

HOUSTON, Sept. 27 -- Devon Energy Corp. and Mitchell Energy and Development Corp. said Thursday they expect to amend their merger agreement shortly to reflect changing stock prices.

They said the amendment would eliminate the risk that Devon's stock price would prevent the issuance of certain tax opinions that are a condition to the transaction. They said the proposed amendment would have no effect on the economics of the transaction to the companies and their shareholders.

Under the existing merger agreement, Mitchell is to merge with a subsidiary of Devon. The transaction is designed to be tax-free except to the extent that Mitchell's shareholders receive cash. Consequently, a condition to closing is that each party will get tax opinions to that effect. The recent decline in Devon's stock price has created doubt as to whether those opinions could be obtained at closing.

The amended agreement would require the parties to complete the transaction as it is now structured if the tax opinions are available. However, in the event that the opinions are not available under that structure, the parties would effect the transaction by creating a new holding company.

Through mergers, Devon and Mitchell would become subsidiaries of the new company. In those mergers, Devon's shareholders would exchange each of their Devon shares for one share of the new holding company. As with the original structure, Mitchell's shareholders would exchange each of their Mitchell shares for 0.585 shares of the new holding company and $31 in cash.

If the new holding company structure is employed, the transaction is expected to be tax-free, except to the extent Mitchell's shareholders receive cash.

Devon and Mitchell said they do not expect the proposed amendment to delay the closing of the merger in the fourth quarter. Devon is located in Oklahoma City and Mitchell in Woodlands, Tex.