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Diamondback Energy Acquiring Rival Endeavor


Topline

Texas oil and natural gas firm Diamondback Energy announced Monday it will buy its privately held competitor Endeavor Energy in an agreement valuing the latter at roughly $26 billion, the latest massive energy deal amid an otherwise quiet time for dealmaking.

Key Facts

Diamondback’s offer of roughly $17.8 billion worth of its publicly traded stock at Friday’s closing share price and $8 billion in cash will result in a newly formed company owned about 60.5% by existing Diamondback shareholders and 39.5% by Endeavor shareholders, according to the companies.

The proposed entity would have a market capitalization of slightly above $50 billion and crucially marry two of the largest players in Texas and New Mexico’s Permian Basin, the biggest oil-producing region in the U.S.

Shares of Diamondback rose about 3% to $156 shortly after the announcement, still sitting about 9% short of the all-time high share price set in October.

Key Background

Diamondbacks’ acquisition of Endeavor notably comes about four months after oil giants ExxonMobil and Chevron announced the biggest respective corporate deals of 2023 in Exxon’s $59 billion snatching of Pioneer Natural Resources and Chevron’s $53 billion accession of Hess. The boom in energy mergers and acquisitions in energy comes during a muted stretch for the space: Last year’s $3.2 trillion in M&A activity made 2023 the quietest year for M&A since 2013, a massive 47% decline from 2021’s record $6 trillion in M&A transactions. The still robust activity in energy dealmaking likely stems from energy companies’ massive cash piles originating from record profits in 2022 as oil prices shot up following Russia’s invasion of Ukraine, according to Harvard University researchers.

Surprising Fact

The boom in energy M&A comes amid a chilly stretch for the sector on the stock market, as energy is the second worst-performing of the S&P 500’s 13 sectors over the last year. The slump comes as investors shunned energy and other sectors typically viewed as safer during economic downturns in favor of higher-growth stocks. Diamondback, whose shares are listed under the $FANG ticker as an homage to its serpentine name, has similarly underperformed the broader market during the down stretch, returning 7% over the 12-month period ending Friday compared to the S&P’s 25% return, including reinvested dividends, according to FactSet data.

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