Please ensure Javascript is enabled for purposes of website accessibility

Bill Barrett Corporation's Stock Plunges After Announcing Merger Agreement

By Matthew DiLallo - Dec 6, 2017 at 10:48AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company plans to combine with private equity-backed Fifth Creek Energy.

What happened

Bill Barrett Corporation (HPR) plunged on Wednesday and was down more than 18% at 11:00 a.m. EST. Driving the downdraft was the announcement that the DJ Basin-focused driller had agreed to combine with Fifth Creek Energy and that it would issue stock to pay down debt as well as finance future drilling activities. 

So what

Bill Barrett Corporation agreed to a strategic business combination with Fifth Creek Energy in a transaction valued at $649 million. Under the terms of the deal, each company will become subsidiaries of a new publicly listed company. Bill Barrett investors will exchange their current shares on a 1-for-1 basis with the new entity while Fifth Creek's private equity owner will receive 100 million shares in the new company. The deal will combine two drillers that have highly adjacent acreage positions, which will enable them to drill longer, higher-returning wells.

Drilling rig and pump jack with mountain range in background.

Image source: Getty Images.

In addition to that strategic combination, Bill Barrett announced that it agreed to exchange newly issued shares to the holder of $50 million of its 7% senior notes due in 2022. Furthermore, the company also revealed a public offering of 21 million shares, which raised $105 million in cash to fund future drilling activities.

Now what

Bill Barrett either issued or plans to issue a boatload of stock to shore up its balance sheet and merge with a peer, which is what's weighing on shares today. While those stock issuances are highly dilutive to existing investors, they will create a much stronger entity that can better weather the current oil market thanks to its increased scale and improving financial position. That makes today sell-off an intriguing opportunity for investors who want to add a potentially high-upside oil stock to their portfolio.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bill Barrett Corporation Stock Quote
Bill Barrett Corporation
HPR

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.