Is SandRidge Energy Inc. the Next $6 Billion Energy Takeover Target?

Source: SandRidge Energy

This week started with news that Kodiak Oil & Gas had decided to hand over the keys to the company in a $6 billion deal with a larger rival. But before analysts or investors finished reading that headline, the speculation had already begun as to which company would be the next target. While much of the speculation centered on independent Bakken shale producers, the other compelling reason why deal making could be on the rise is the fact that hedge funds are making big bets on independent energy companies. So, given its history with hedge-fund meddling, SandRidge Energy (NYSE: SD  ) just might be the next $6 billion energy deal that goes down.

Targeting the targets
CNBC had an interesting article this week naming a few Bakken Shale focused companies that might be the next one to get bought out. The article focused on the hedge-fund involvement in the sector and noted that these investors could push for value creation, with an acquisition by larger rival the quick way to accomplish that task.

The article suggested that one of the reasons why Kodiak Oil & Gas was a buyout candidate was because famed billionaire John Paulson's hedge fund owned a 10% stake in Kodiak. Further, what's really intriguing is that Paulson's fund also owned a 7.8% stake in Whiting Petroleum (NYSE: WLL  ) , which is the company that's acquiring Kodiak Oil & Gas. It is also worth noting that Paulson isn't the only investor that has overlapping ownership in both companies. In fact, six out of Kodiak Oil & Gas' top 10 investors were also top 10 investors in Whiting Petroleum, in fact, a full 60% of investors owned stock in both companies. Needless to say, merger synergies here won't just be had from combining the operations of the two companies, but the merger will save some paperwork for investors, too.

Source: SandRidge Energy 

Why this might matter to SandRidge Energy
CNBC's article detailing potential takeover candidates noted three stocks in particular that have high hedge-fund ownership including WPX Energy (NYSE: WPX  ) . It noted that four big hedge funds own shares of WPX Energy, including Omega Advisors, which also owns a large stake in SandRidge Energy. If we begin to see activist investors agitate for a merger mania in the energy space, these overlapping investors could be a key to which companies get matched together.


Source: SandRidge Energy

As I noted before, SandRidge Energy is no stranger to being targeted by activist investors. It was TPG-Axon Capital that waged a proxy war with the company, which ended in the dismissal of founder and former CEO Tom Ward. Among the many changes TPG-Axon Capital wanted to see at SandRidge was for it to exit its Gulf of Mexico operations, which it did earlier this year, and then eventually sell itself to the highest bidder.

Hedge-fund investors have also been vocal as to what price they'd be willing to sell as both Omega Advisors and TPG-Axon Capital think shares are worth at least $10 apiece. Though those numbers are a bit less than the value that CEO James Bennett sees as he has gone on record suggesting the company's net asset value is as high as $15.50 per share. The question that remains to be seen is how long these investors plan on waiting for Bennett to deliver on his plan to close the gap between the stock's price and the net value of the company's assets. Especially when an all-stock merger like the one Whiting Petroleum has proposed for Kodiak Oil & Gas is seeing an immediate realization of value for both companies and quick returns for big investors.

Investor takeaway
I'm not sure how long SandRidge Energy can remain an independent company if a merger wave hits the energy sector. While its activist investors are currently allowing new management to turn the company around, that leash likely won't be too long if value can be created quicker through merging with a larger peer. 

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (1) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 09, 2014, at 10:22 PM, PuddinHead42 wrote:

    If only they were a major player in the Bakken! But still, I have heard the Private Equity rumor too. As of 8/8/14 it reported bad earnings and is below $5.50. If it hold support around $4.65 I will definitely load up.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3034669, ~/Articles/ArticleHandler.aspx, 9/1/2015 6:25:49 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Matt DiLallo

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries:

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:06 PM
SD $0.53 Up +0.02 +4.53%
SandRidge Energy CAPS Rating: **
WLL $19.33 Up +1.73 +9.83%
Whiting Petroleum… CAPS Rating: ***
WPX $7.31 Up +0.25 +3.54%