- Would create preeminent pure-play Eagle Ford shale operator
- Proposed combination and additional $500 million equity investment represent a premium of 21% to 30-day volume-weighted average price with significant upside potential
- Urges SilverBow Board to engage in good faith negotiations and provide shareholders the opportunity to vote on its value-enhancing proposal
- Kimmeridge to host investor conference call to discuss its proposal on March 14 at 11:00 am ET
Kimmeridge, an alternative asset manager focused on the energy sector, has delivered to the SilverBow Resources Board of Directors a proposal to combine Kimmeridge Texas Gas ('KTG') and SilverBow. The KTG assets have an equity value of $1.1 billion and an expected enterprise value of $1.4 billion at closing of the proposed transaction.
Under the terms of the proposal, Kimmeridge would contribute the KTG assets to SilverBow in exchange for 32.4 million shares priced at $34 per share. In addition, Kimmeridge will inject $500 million of fresh equity capital at the same price of $34 per share, in exchange for 14.7 million shares. At closing of the Transaction, Kimmeridge and its affiliates would own a majority of the outstanding shares of the combined company ("CombineCo"), with a total of 50.3 million shares of common stock (inclusive of Kimmeridge's current 3.3 million share position in SilverBow).
The Transaction will be accretive to SilverBow shareholders. The $34 share price represents a premium of 8.5% over SilverBow's closing share price on March 11, 2024 and 21% over the 30-day volume-weighted average price of $28.12 as of March 11, 2024.
Kimmeridge has sufficient capital to fully finance the equity investment of $500 million and intends to use those funds to pay down SBOW's existing long-term debt obligations. Kimmeridge has received highly confident letters from Barclays, RBC Capital Markets and other lenders with respect to the debt consideration required to facilitate the Transaction.
Concurrent with delivering its proposal, Kimmeridge published a formal offer letter and investor presentation on its website (https://kimmeridge.com/sbow/) and issued the following open letter to shareholders:
Fellow Shareholders,
As the largest investor in SilverBow, holding 12.9% of outstanding shares, we are writing to share a strategic vision that would position SilverBow to drive compelling value creation for all shareholders. We have sought to engage in a constructive dialogue with SilverBow's Board about a proposal that would create a preeminent pure-play Eagle Ford shale operator, and a partner of choice for future consolidation.
Unfortunately, the company's Board and management have consistently dismissed our efforts. Following the Board's March 1 letter to shareholders, which further solidified their position and misled the investment community as to our efforts, we felt it was critical to give all shareholders the opportunity to evaluate the value-enhancing Transaction we have set forth here.
Creating the Largest Pure-Play Operator in South Texas
The proposed Transaction would immediately create the largest public pure-play Eagle Ford shale operator with enhanced scale, a low-cost, high-margin production base, a strong and flexible balance sheet, and a clear path to compelling shareholder returns. We believe all shareholders will benefit from the opportunity to participate in the compelling upside of a larger and more resilient company that is uniquely positioned to drive growth and lead the next phase of consolidation in the Eagle Ford.
The combined company would operate at the front end of the cost curve, with over 14 years of high-quality inventory. With a de-levered balance sheet, the company would target a 65-70% reinvestment rate, creating a clear path to access the high-yield market and be positioned to begin returning cash to shareholders in 2025 through a significant dividend.
Kimmeridge would also leverage its deep experience to empower the combined company to become a sustainability leader in the upstream sector – including a commitment to net-zero GHG emissions in 2025 and obtaining gas certification across the consolidated portfolio. By way of example, Kimmeridge pioneered the founding of Civitas Resources, which became Colorado's first carbon-neutral energy producer on day 1 of its operations.
Importantly, under our proposal, the combined company would adopt best-in-class governance practices directly aligned with the interests of shareholders. This new structure would feature: Board and management compensation tied to absolute TSR and higher equity ownership for management, a majority independent, declassified board of directors with vast expertise, a 7-year term limit for directors, and enhanced shareholder rights. The refreshed Board would be comprised of 9 total directors. Kimmeridge would nominate 5 directors, including a Kimmeridge-nominated Chair and 4 independent directors. SilverBow would nominate the remaining 4 directors.
Furthermore, we intend to follow a "best athlete" approach in forming a management team that brings a wealth of experience to benefit the combined company. For continuity, Kimmeridge anticipates retaining key members of the SBOW C-suite while enhancing leadership with additional hires.
Leveraging Our Expertise to Drive Value for All Shareholders
Kimmeridge has a proven history of partnering with management teams across the oil and gas sector to enhance profitability, establish best-in-class sustainability programs, and align with shareholder interests. As part of these efforts, Kimmeridge has developed extensive experience in supporting the consolidation of smaller, disaggregated assets at attractive entry points, as it did with Civitas.
For instance, when Kimmeridge first led the formation of Civitas, the $1.2 billion platform had just emerged from bankruptcy proceedings. Approximately 3 years later, its equity valuation now stands at approximately $7 billion with peer-leading capital returns to shareholders.
Kimmeridge would bring its deep operational and financial expertise to bear on behalf of the combined company. We would work collaboratively to position the new company for consolidation and related measures to unlock its significant value potential for all stakeholders.
Giving Shareholders a Voice
Given the combination's clear strategic and financial merits, and in the interests of full transparency, we are making public our offer letter and supporting deck. Shareholders can assess for themselves the benefits of the proposed merger relative to SilverBow's current standalone trajectory.
If SilverBow is as committed to hearing the perspectives of shareholders as it purports to be, then it will be open to the following proposed process:
- Engaging in good faith discussions with Kimmeridge;
- Working to reach a definitive agreement by April 26; and
- Ultimately taking the Transaction to a shareholder vote – where the owners of the company will have the final say.
Contrary to what the SilverBow Board would have you believe, Kimmeridge's focus throughout our engagement has squarely been on putting forward a highly compelling Transaction that paves the way for value creation for all.
Thank you,
Ben Dell, Co-Founder and Managing Partner of Kimmeridge
Source: Kimmeridge
