EXCO chief plans to buy all company shares in $4B deal

Posted 3m ago
By Chris Kahn, AP Energy Writer

NEW YORK — The CEO of oil and gas producer EXCO Resources (XCO)
said Monday that he plans to buy all the company's outstanding shares in a deal valued at more than $4 billion.

Douglas Miller is expected to take the company private, which would make it easier to shut down unprofitable natural gas projects and wait out the slump in prices. His offer of $20.50 per share represents a 38% premium over EXCO's closing price Friday. Shares rose almost 30% in Monday trading.

READ: Miller's letter to the board.

EXCO, based in Dallas, develops onshore properties in North America and controls about 1 trillion cubic feet of proven gas reserves. Like most petroleum companies in the U.S., EXCO has wrestled with low natural gas prices that have made some of its operations unprofitable.

Many of its wells only make financial sense with prices above $4 per 1,000 cubic feet, said Neal Dingmann, an analyst with Wunderlich Securities. Natural gas currently trades at $3.895 per 1,000 cubic feet.

Dingmann said he suspects Miller will eventually idle a number of EXCO wells and slash capital spending — something that would be tough to do as a publicly traded company.

"The prudent thing to do with natural gas prices where they are is to cut your activity," he said. "But the minute you cut production, the market is going to punish you" as investors sell their shares. "So the only way to do that is as a private company."

To pay for the acquisition, Miller said in a letter to the company's board of directors that he expects to use a "significant portion" of his 3% ownership in the company to raise money. Miller said he'll rely on money raised from the company's senior management, outside investment partners and loans.

Miller said in the letter that the company's daily operation wouldn't change if the deal goes through. He expects to remain the company's chief executive and the company's senior management should be unchanged.

The EXCO board plans to create a special committee of independent directors to consider Miller's offer.

Major shareholders including Texas billionaire T. Boone Pickens, Oaktree Capital Management and Ares Management are interested in the acquisition, Miller said in the letter. JP Morgan Securities and Goldman, Sachs are financial advisers and Vinson & Elkins has been hired as legal counsel for the transaction.

The annoucement was hardly out before numerous lawfirms announced their intention to look into the deal on behalf of shareholders.

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