Canaan Energy

(KNAN)

was trading up 28% on news that it would be acquired by

Chesapeake Energy

(CHK) - Get Report

in a deal worth about $118 million.

Chesapeake plans to pay $18 a share for the 4.5 million shares of Canaan it doesn't already own. The total value of the deal includes assumed debt of $33 million and $4 million of stock previously acquired at $12.00 a share.

In a press release, Chesapeake management said it originally offered $12 a share for Canaan, but after reviewing the assets, the price was increased to the mutually agreeable price of $18 a share. The company said the transaction would create value for both companies and is in keeping with Chesapeake's strategy of acquiring low-cost, long-lived natural gas assets.

Chesapeake plans to use cash on hand to fund the acquisition.

Shares of Canaan were trading up to $17.79 on the news, while shares of Chesapeake were trading about flat from Friday's close of $8.04.