Exxon Mobil purchased XTO Energy in an all-stock deal valued at $31 billion. This is the biggest Oil and Gas Deal in 4 Years. Each shareholder of XTO will receive .7098 shares of Exxon Mobil for each of their shares.
On Monday Rex W. Tillerson, the chairman and chief executive of Exxon said, “This is not a near-term decision; this is about the next 10, 20, 30 years … We think there will be significant demand for natural gas in the future.”
The Trading Play: The Exxon acquisition of XTO values XTO at $51.69 a share. Currently, shares of XTO are fetching a little over $48 a share. If you strongly believe this deal will pass all regulation hurdles, which it most likely will, then you can buy XTO shares at an arbitration discount of over $3 right now.
One major reason for the current XTO share discount is the acquisition is expected to close in the 2nd quarter of 2010. Announcing a deal is one thing, signing the paper work and receiving the proper authority approval is another.
The Novice Lesson: For traders, anytime you see one company buy another, the stock prices change in this way: In the short-term, the acquirer’s stock price goes down and the stock price of the company being acquired goes up. However, the long-term goal is to increase shareholder value after the operations are integrated successfully and both the top-line and bottom-line numbers display a faster growth rate for the newly merged company.
XOM is trading under its 200 day MA of $70. XTO is trading above its 200 day MA of $38.40.
Another company to keep your eye on in the natural gas space is best-of-breed play Chesapeake Energy (CHK), another potential buyout candidate if we begin seeing the monster oil companies waking up to a cleaner energy future and less of a reliance on Middle East Oil.
Disclosure: No positions in the companies mentioned.
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