Is This Offer a Takeover or a Takeunder?

In reviewing the proposed management-led buyout of  EXCO Resources (NYSE: XCO  ) , I'm reminded of a classic Daily Show segment from 2003, in which President George W. Bush "debates" Gov. George W. Bush via archival footage that shows him expressing divergent points of view at different phases of his political career.

EXCO Chairman and CEO Doug Miller, who is leading the buyout proposal, had this to say about the offer: "I believe that $20.50 per share is very compelling and in the best interest of the company and its public shareholders and that the shareholders will find this proposal attractive."

That's interesting, because as recently as July, Miller (or another senior member of the EXCO management team, with Miller's blessing) was out making a very different case for the company's undervaluation. A per-share value of $20.50 was certainly not in the ballpark of estimates provided to securities analysts, portfolio managers, and other potential investors.

Here's a link to the slides in question. Scroll down to the one marked "7" and you'll see the firm's net asset value summary, pro forma for two acquisitions, including Southwestern Energy's (NYSE: SWN  ) East Texas Haynesville/Bossier assets, and a joint venture with BG Group in the Marcellus shale, which is EXCO's other major area of focus. (Given these regional focuses, Cabot Oil & Gas (NYSE: COG  ) is perhaps the most directly comparable peer.) NAV-based valuations are pretty common in E&P-land. I recently stepped through one of these calculations in my look at Bakken player GeoResources (Nasdaq: GEOI  ) .

In the firm's low case scenario, net asset value per share is pegged at $25.43. In the high case scenario, which sees higher per-unit values assigned to reserves and a higher EBITDA multiple awarded to EXCO's 50%-owned Haynesville-area midstream business, NAV per share weighs in at $36.94.

The midpoint of those NAV estimates exceeds $31, which is more than 50% higher than the price tag that CEO Miller now deems "very compelling." So that's interesting.

Management actually pulled this slide from a September presentation, when Monday's deal was most likely in the works. They also yanked the subsequent slide, which may make selling this deal to outside shareholders even tougher. In slide 8, titled "Unmatched NAV Growth," management lays out a road map to an NAV per share of $50 to $60 by 2014. This is based on $5 to $6 natural gas, which is roughly where Chesapeake (NYSE: CHK  ) sees prices going over the next couple years, and management's plan of 30% to 40% annual growth for the next five years. (The latter has since been ratcheted back to 30% growth).

So is EXCO worth $20.50 per share, or far more? That depends on whether you listen to November Doug Miller or July Doug Miller. My best guess is that a higher offer would be needed to win over shareholders here. After all, they were just told their shares were worth at least $25, and should command twice that value in five years' time.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS.

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