Why Heckmann's Shares Soared Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Fracking water management company Heckmann (NYSE: HEK  ) exploded as much as 36% higher today after the company announced a major acquisition.

So what: Heckmann is buying privately held Power Fuels for $125 million in cash and 95 million shares of stock, which would have made this a $381 million deal as of Friday's close. The company will also assume $150 million in debt and cede operational control of the company to Power Fuels' management.

Now what: The deal is being cheered by investors and analysts on all levels because it pushes the company into liquid rich plays like the Bakken Shale. The combined company will get about 70% of it business from these basins, which is where a majority of the new drilling is today. The company is also paying a relatively cheap price of 3.4 times EBITDA, which it was able to negotiate because it is giving operational control up in the deal.

I think this is a great move on all accounts, and while I would like to see the stock come back a bit before making a big bet, I think this will push the stock higher in the long term.

Interested in more info on Heckmann? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On September 04, 2012, at 3:34 PM, mikevr1463 wrote:

    The merger, with Heckman not a CEO but a chairman, means that HEK will no longer have to wait until NG prices rise to be "fracking" active.

    Oil disposal, oil fracking, and NG fracking is clearly a diversified company.

    Q. Will there be a later problem due to siginificant share dilution?

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