Fresh M&A Wave May Wash Over Gulf E&P

If the date wasn't expensive enough after the $43 million fee paid to Plains for the breakup, consider this: Should EPL walk away from the Stone transaction, Stone is due more than $26 million in breakup fees from Energy Partners. That's one expensive fling!

That said, Woodside's offer has to be considered by EPL's board. The proposal comes from a reputable company with plenty of financial firepower and provides EPL shareholders with a guaranteed premium that otherwise wouldn't be certain anytime soon, given the uncertainties of the pending Stone merger and a company that hasn't experienced robust exploration success in recent quarters.

Moreover, it creates more bulk for EPL in the Gulf of Mexico to help it compete with bigger players such as W&T Offshore(WTI Quote) that have captured major mergers over the past year, some would argue at the expense of EPL.

Still, Energy Partners is likely to make the argument that its franchise is worth more than the current Woodside offer and that the Stone merger would create a larger company with good, competitive bloodlines. In addition, Energy Partners and its adviers know that the first unsolicited offer typically isn't either the best or final offer. As a result, I'd look for EPL to kindly reject the current Woodside offer and ask for more.

While it's hard to imagine a deal in which EPL buys Stone and the combined entity is then purchased by Woodside, it's not impossible. More likely, however, is a sweetened Woodside bid for EPL, probably in the mid-to-high $20s per share, that would cause EPL to turn its back on Stone.