Range agrees to buy Memorial Resource in $3.3 billion deal

By NAUREEN S. MALIK on 5/16/2016

NEW YORK (Bloomberg) -- Range Resources Corp. agreed to buy Memorial Resource Development Corp. in a $3.3 billion all-stock deal to take advantage of growing demand from natural gas exports and chemical manufacturers. It’s Range’s single largest deal on record.

Memorial Resource shareholders will get 0.375 shares of Range for each share held, implying a value of $15.75 a share, or a 17% premium to the closing price on May 13, the companies said in a statement Monday. The transaction is valued at $4.4 billion when $1.1 billion of debt is included.

The combination -- one of the few U.S. energy mergers during the market rout -- will give Fort Worth, Texas-based Range access to an emerging gas export market and to properties in northern Louisiana, adding to its operations in Oklahoma, Pennsylvania and Texas. While producers saw shares collapse last year with the commodities slump that slashed prices for oil and gas, Range has rebounded 70% this year.

“What we’ve been advocating for Appalachian producers is that they diversify their footprint and use their stock as currency; it’s exactly what Range just did,” said Subash Chandra, a research analyst at Guggenheim Securities LLC. “I think it’s very smart on Range’s part. It’s just another example of how they are miles ahead of the competition.”

Range reported a smaller-than-forecast first-quarter loss last month. It supplied the first U.S. exports of waterborne ethane earlier this year.

Export market

The “sizeable position” in northern Louisiana will better allow Range to take advantage of rising gas exports to Mexico by pipeline and liquefied natural gas shipments by tanker, the company said in an investor presentation. Range will also be able to supply growing demand from Gulf Coast power producers and petrochemical plants.

With its Texas roots, Range became one of the biggest gas producers in Appalachia’s Marcellus shale. Range and other drillers have been so good at cutting costs and squeezing gains from Marcellus wells that supplies became stranded because of a lack of pipeline capacity in the region.

The Memorial acquisition is the third announced by Range this year, making it their most active deal-making year since 2007 when the shale boom was just getting started, according to data compiled by Bloomberg.

Range fell 2.8% to $40.85 at 8:39 a.m. before the start of regular trading in New York. Memorial rose 11% to $14.90.

The transaction is “accretive to our cash flow, bolsters our credit profile and enhances the overall portfolio,” Jeff Ventura, Range’s CEO, said in the statement. Memorial’s footprint in Louisiana gives Range access to the country’s new gas export market, he said.

The boards of both companies have unanimously approved the terms. Both expect completion, which is subject to shareholder and regulatory approvals, in the second half of 2016. Credit Suisse Group AG advised Range, while Morgan Stanley and Barclays Plc worked with Memorial Resource.

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