Frisco-based Comstock Resources Inc. said on June 10 it will purchase privately held, Houston-based Covey Park in a cash and stock transaction valued at approximately $2.2 billion. The deal includes the assumption of Covey Park's outstanding debt and the retirement of Covey Park's existing preferred units which in the aggregate total approximately $1.1 billion. Covey Park is a privately held natural gas company with operations in the core of the Haynesville shale basin.
The deal strengthens Comstock’s position in the Haynesville shale basin and will give the company net production of more than 1.1 billion cubic feet equivalent per day, the company said in a news release.
Along with the acquisition, Dallas Cowboys owner Jerry Jones will invest an additional $475 million in cash for 50 million of newly issued shares of Comstock common stock to be issued at an agreed upon price of $6 per share and $175 million of newly issued shares of perpetual convertible preferred stock. The additional equity investment brings Jerry Jones' total investment in Comstock to approximately $1.1 billion. Jones will remain the company's largest shareholder with 75% ownership interest.
Denham Capital, a prominent energy focused private equity firm with $9.7 billion in invested and committed capital, becomes the second largest shareholder with approximately 16% common stock ownership interest
Comstock's Board of Directors will be expanded to include Covey Park's Co-CEO John Jacobi and Jordan Marye, a Managing Partner of Denham Capital. The management team will be led by Comstock's current CEO M. Jay Allison but will include representation from both management teams and will combine the two companies' operating staffs to retain talent and achieve an efficient organization.
"I am excited to provide the funding and to team up with Denham Capital to combine the two companies to create the basin leader in the Haynesville shale,” said Jones. “This combination is another step toward completing my vision to create an industry leading natural gas company."
"After a year of evaluating several potential targets in the Haynesville shale, we believe we have found the perfect merger partner,” said Allison, Comstock’s CEO. “This merger is an excellent fit with our existing acreage and continues our strategic plan of creating significant scale and resource depth in the Haynesville shale basin. The combined company will have a stronger balance sheet, enhanced by a large inventory of high quality, low cost and high return drilling opportunities. In integrating Covey Park we plan to focus on operating efficiency and having a combined drilling program that provides for substantial free cash flow to achieve our goal of reducing our leverage."
Jerry Jones will invest an additional $475 million in cash for 50,000,000 of newly issued shares of Comstock common stock to be issued at an agreed upon price of $6.00 per share and $175 million of newly issued shares of perpetual convertible preferred stock. The additional equity investment brings Jerry Jones' total investment in Comstock to approximately $1.1 billion.
At closing Comstock will assume Covey Park's existing $625 million 7.5% senior notes, retire amounts outstanding under Covey Park's credit facility, and redeem all outstanding previously issued Covey Park preferred units.
In connection with the transaction, the Company has appointed BMO Capital Markets to arrange an amended and restated $2.5 billion bank credit facility with an initial borrowing base of $1.575 billion and a maturity of five years from closing. The company plans to elect to set the borrowing base at $1.5 billion at closing. The cash consideration payable in the transaction will be funded through a combination of the equity contribution from Jerry Jones and borrowings under the company's bank credit facility.
Covey Park's equity owners will receive $700 million in cash, $210 million of a newly issued perpetual convertible preferred stock and 28,833,000 shares of newly issued Comstock common stock at an agreed upon price of $6 per share.
The transaction is expected to close on or before July 31, 2019, subject to the satisfaction of certain regulatory approvals and other customary closing conditions.
Wells Fargo Securities LLC is acting as lead financial advisor to Comstock and BMO Capital Markets is also acting as a financial advisor to Comstock. Locke Lord LLP is acting as legal advisor to Comstock. BofA Merrill Lynch and Barclays are acting as lead financial advisors to Covey Park. Citigroup Global Markets Inc. and Goldman Sachs & Co. LLC also provided financial advice to Covey Park. Vinson & Elkins LLP is acting as legal advisor to Covey Park.