Wall Street Likes Idea Of Conoco-Concho Tie-Up -- SeekingAlpha -- October 16, 2020

Comment:

Although he lists it number five (of seven), Stephen Covey's most important habit for highly effective people is, "seek first to understand, then to be understood." 

Hold that thought.

When I read the "headline" for the SeekingAlpha story linked below and then saw the first bullet, I thought I must be missing something, or the headline was wrong. The first summary bullet: 

• shares of COP shed 4.5% after the announcement that COP might acquire Concho Resources.

That certainly did not look like Wall Street liked the idea of a Conoco-Concho tie-up.

But then, remembering Covey's fifth habit, I read the summary again (and again) and then realized where I was wrong.

Long-term investors know that in deals such as these, 99% of the time, the share price of the acquirer, the buyer, will go down. But the buyer is not "Wall Street."

In this case, Wall Street "is" / "are" the analysts:

• J.P. Morgan analyst Phil Gresh says Concho has strong confidence that it has assembled the highest quality inventory in the Permian Basin, and shareholders are looking for a 20%-plus deal premium. 
• Tudor Pickering Holt says its checks show support across the board, and believes a deal would be accretive to Conoco on free cash flow metrics even if it pays a premium, given Concho's discounted trading.
  

It's hard to find a company with more credibility than JP Morgan and JP Morgan analyst likes the idea, as does Tudor Pickering Holt. 

More could be said, but that's enough for now.

Original Post

Wall Street likes idea of Conoco-Concho tie-up. Link to SeekingAlpha:

• Shares of Conoco Phillips shed 4.5% in the past three days while Concho Resources jumped 8.7% after Bloomberg reported Conoco is near a deal to buy Concho, in what could be the largest shale industry deal since the collapse in energy demand earlier this year. 
• The companies are finalizing the terms of a transaction and could announce an agreement as soon as Monday, Bloomberg now says. 
• According to Street Advisor, Wall Street analysts note the acquisition would make strategic sense for Conoco given the increased exposure in the Permian for an asset that likely would be accretive. 
• From Concho's perspective, analysts say the company's solid inventory status and healthy free cash flow generations mean the company does not need to capitulate at lows, and shareholders would expect a healthy premium to Oct. 13's ~$44 price. 
• J.P. Morgan analyst Phil Gresh says Concho has strong confidence that it has assembled the highest quality inventory in the Permian Basin, and shareholders are looking for a 20%-plus deal premium. 
• Tudor Pickering Holt says its checks show support across the board, and believes a deal would be accretive to Conoco on free cash flow metrics even if it pays a premium, given Concho's discounted trading. 

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Other articles on this story:

• Conoco closing in on Concho in year's biggest oil deal -- Bloomberg; link here;

a tie-up of the explorers will create a heavyweight driller in America’s most prolific oilfield -- the Permian Basin of West Texas and New Mexico -- rivaling only the likes of Occidental Petroleum Corp. and Chevron Corp. in terms of crude output.

• what rival Concho could mean for ConocoPhilips -- Houston Chronicle, link here;

Concho makes an attractive acquisition target because it has a relatively low amount of debt and desirable assets in the Permian Basin where scale is needed to compete. 

Concho has drilling rights on about 800,000 acres in the Permian, which stretches from eastern New Mexico to West Texas. 

Conoco has a relatively smaller position in the Permian Basin than some of its peer.s That’s kind of been an obvious hole. Having scale in the Permian would be a key driver.