Oil and gas producer

Devon Energy

(DVN) - Get Devon Energy Corporation Report

said Friday that it will buy rival

Santa Fe Snyder

(SFS) - Get Smart & Final Stores, Inc. Report

in a stock deal valued at $2.35 billion, to form the fourth-largest U.S.-based independent oil and gas company.

Under the terms of the agreement, Santa Fe Snyder shareholders will receive 0.22 share of Devon common stock, or $12.91, according to Devon's closing price Thursday of 58 11/16. The price is a 17% premium to Santa Fe Snyder's close Thursday of 11. As a result, Santa Fe Snyder shareholders will own about 32% of the new combined company -- which will retain the Devon name -- with Devon shareholders owning the balance.

Devon will also assume $1 billion in Santa Fe Snyder debt and liabilities.

Shares of Devon fell 2 15/16, or 6%, to 55 3/4 in Friday morning trading on the news, bringing the new value of the deal down to $2.24 billion, or $12.27 a share. (Devon finished down 3 1/16, or 5%, at 55 5/8.) Meanwhile, shares of Santa Fe Snyder rose 9%, or 15/16, to 11 15/16. (Santa Fe Snyder closed up 13/16, or 7%, at 11 13/16.)

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The companies expect to realize annual cost savings of $30 million to $35 million and anticipate completion of the deal in the third quarter

On a pro forma basis, the new Devon will have a pro forma enterprise value of about $9 billion, with total proved reserves of about 1.1 billion barrels of oil equivalent and the capability to produce between 115 million and 125 million barrels of oil equivalent in fiscal year 2000.

J. Larry Nichols, currently chief executive of Oklahoma City-based Devon, will become president and chief executive of the new company and James Pate, currently chairman of Devon, will become chairman of the board. Houston-based Santa Fe Snyder's chief executive, James Payne, will be vice chairman.

Devon has more than doubled in size after buying up


and Canada's

Northstar Energy

last year. Santa Fe Snyder is also no stranger to the acquisition game, having purchased

Snyder Oil

in 1999.