Shares in Texas based Denbury Resources Inc (NYSE:DNR) slipped over 8% in pre-market trade as the oil and gas group revealed it was buying Penn Virginia Corporation (NASDAQ: PVAC) in a deal valued at around $1.7 billion.
The firms have struck a definitive merger deal in which the former will acquire the latter, including debt.
Denbury said it would create a leading mid-cap oil producer with top-tier margins, a strong production growth trajectory and the potential for significant free cash flow.
"The combination is accretive to key per-share metrics and will immediately improve the company’s leverage profile," said Chris Kendall, Denbury's president and chief executive.
"The combined company will have a stronger balance sheet, enhanced by its growth trajectory and scale.
"We expect the combined company will generate positive free cash flow immediately, while growing at a meaningful and sustainable pace.
"Through this combination, we plan to focus Denbury’s significant enhanced oil recovery expertise on the prolific Eagle Ford shale, positioning us at the forefront of this exciting new arena for EOR.
"Denbury’s passion for improved oil recovery and our deep technical knowledge give us a strong advantage on this new frontier.”
Under the terms of the deal, shareholders of Penn Virginia will receive 12.4 shares of Denbury common stock and $25.86 of cash for each share of Penn Virginia common stock.
Penn Virginia shareholders can choose all cash, all stock or a mix of stock and cash, subject to proration, which will result in the total issue of around 191.6 million Denbury shares and payment of $400 million in cash.
The transaction was unanimously approved by the board of directors of each company, and Penn Virginia shareholders holding 15% of the outstanding shares signed a voting agreement to approve the deal.Oiler Denbury Resources Inc shares slip as it's poised to acquire Penn Virginia in $1.7B deal
In the regular session, shares in Denbury fell further, losing nearly 23% to $3.35 each.