Dealmaking is back in the energy business. The recently acquisitive Devon Energy ( DVN) agreed Tuesday to buy Canadian exploration and production company Anderson Exploration ( AXN) for nearly $3.4 billion in cash, a 50% premium to Anderson's closing price Friday. The deal makes Devon the largest independent oil and gas producer in North America, and has some observers expecting a flood of similar deals. Devon dropped 4% Tuesday morning on concern it was overpaying for the Canadian company's assets; the deal will be slightly dilutive to earnings in the near term, Devon said. Meanwhile, Santa Fe International ( SDC) agreed to acquire Global Marine ( GLM) for $3 billion in stock, a 16% premium to Global Marine's Friday close. The deal creates the world's second-largest offshore driller. Santa Fe dropped 8% Tuesday morning.
we suggested that Anderson was in play, contending that Anadarko Petroleum was interested. After all, who would have thought Devon was looking at another so close on the heels of announcing its deal to acquire Mitchell Energy? "Expanding our presence in Canada has been an important objective for Devon," Devon Chief Executive J. Larry Nichols said in a statement announcing the merger. "Anderson was at the top of our list of acquisition opportunities." Canadian oil and gas investors like the deal. "We are ecstatic," says Scott Walters, a trader at Toronto-based Research Capital, who sold his Anderson stake this morning. "$40 in this market is incredible. Anderson did well for its shareholders." Perhaps too well: The large premium and near-term dilution have some wondering if Devon overpaid. "They paid a big price," says Raymond James exploration and production analyst Wayne Andrews. He notes that Devon paid $1.23-$1.44 per thousand cubic feet of proven reserves. Other recent deals were priced around $1.20. "It also increases Devon's debt-to-market-cap above 50%, which could be an issue in a downturn," Andrews adds. Still, "Anderson's reserves are high quality, and their position in the Arctic is a real plus for Devon over time," says Andrews, who has a buy on Devon and a strong buy on Anderson. Raymond James hasn't banked for either company. "Short term, Devon's road could be somewhat bumpy." reported Rio Alto was being courted by Calpine. And there are a number of opportunities for synergies in the domestic natural gas market. "There is a list of probably 10, 15 or 20 names that are mentioned as possible takeovers," says Bryan Dutt, portfolio manager at Ironman Energy Capital and a member of the TSC Energy Roundtable. "Companies like Cross Timbers which Dutt is long . Burlington Resources is a large name that is often mentioned; Ocean Energy is a hot name of late; Louis Dreyfus Natural Gas is another." And while most analysts agree that additional combinations are likely, the recent slide in natural gas prices could slow the process. "I do think there could be a hiccup here in terms of the pace of consolidation because of the volatility in natural gas prices," says Adkins. "It is going to be harder to adjust models and determine price in the current environment."