Denver-based independent oil and gas company, Forest Oil Corporation (FST) has settled into an agreement with Sabine Oil & Gas LLC to alter their earlier announced merger agreement in order to protect the interests of their respective shareholders.
As per the amended transaction, the economic terms of the deal and treatment of the existing indebtedness of Forest and Sabine Oil & Gas remain the same as before.
Under the altered merger agreement, Forest Oil and Sabine Oil & Gas will merge their businesses through a revised transaction structure. According to the new structure, Sabine Investor Holdings, LLC and a related investment entity (together, the “Sabine Investor Entities”), the owners of Sabine Oil & Gas, will contribute their interests in Sabine Oil & Gas to Forest Oil, in return for the issuance of common and preferred stock in Forest Oil to Sabine Investor Entities.
Following this, Sabine Oil & Gas will become a wholly owned subsidiary of Forest Oil, Sabine Investor Entities will hold common and preferred shares representing an aggregate 73.5% economic interest in Forest Oil and the existing common shareholders of Forest Oil will hold the remaining 26.5% economic interest in the company.
Further, with the issuance of preferred stock to Sabine Investor Entities, the latter will have about 80% of the combined voting interest in Forest Oil. The transaction is anticipated to be tax-free for Forest Oil shareholders and Sabine Investor Entities, unchanged from the original transaction structure.
The Series A Common-Equivalent Preferred Stock will be convertible into Forest common stock at the option of the holder, and will convert automatically if Sabine Investor Entities and its affiliates cease to own Forest Oil shares representing two-thirds of the combined voting interest in Forest Oil. The Series A Common-Equivalent Preferred Stock will be equivalent to Forest Oil common stock, except for the voting rights, and it will have no special dividend rights.
The headquarters of the combined entity will be in Houston, TX, and will be supervised by Sabine’s current executive management team. The transaction will expectedly be complete in the fourth quarter of 2014.
At present, Forest Oil carries a Zacks Rank #3 (Hold). Meanwhile, one could consider better-ranked players in the same sector like Magellan Midstream Partners L.P (MMP), BPZ Resources, Inc. (BPZ) and EQT Corp. (EQT). All these stocks sport a Zacks Rank #1 (Strong Buy).
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