Denbury shares fall on Encore deal; Agrium seen as deal breaker; Black & Decker takes bid

By Cristal Cody

Tupelo, Miss., Nov. 2 - While shares of Denbury Resources Inc. lost more than 10% on Monday after the company said it will buy out Encore Acquisition Co. in a cash, stock and debt deal valued at $4.5 billion, an analyst Prospect News spoke with said the deal should prove good for Denbury in the long run.

In other situations, CF Industries Holdings, Inc. revised its offer for Terra Industries Inc. to include cash, but the takeover still largely depends on what Agrium Inc. does in its bid for CF Industries, an analyst told Prospect News on Monday.

In a late-breaking deal Monday, tool supplier Stanley Works said it will acquire Black & Decker Corp. for $4.5 billion.

Meanwhile, Wall Street rallied to the close on Monday.

The Dow Jones Industrial Average moved up 76.71 points, or 0.79%, to 9,789.44.

The Standard & Poor's 500 index rose 6.69 points, or 0.65%, to 1,042.88, and the Nasdaq Composite index edged up 4.09 points, or 0.20%, to 2,049.20.

Denbury in good shape

Shares of Denbury closed down $1.51, or 10.34%, at $13.09 on Monday.

"The stock is down because of the dilution of shares," an analyst told Prospect News.

Plano, Texas-based oil producer Denbury said in a release late Sunday that it will acquire oil and natural gas reserves developer Encore in a deal for $50.00 per share in cash and stock.

The offer for Fort Worth-based Encore includes $15.00 in cash and $35.00 in Denbury stock, which is subject to a 12% collar range. Denbury expects to issue 115 million to 146 million shares to fund the equity portion of the deal.

The deal includes the assumption of debt and Encore's minority interest in Encore Energy Partners LP.

For the transaction, Denbury will receive a $1.6 billion bank revolving credit facility and a $1.25 billion bridge financing to fund the cash portion and to potentially retire and replace $825 million of Encore's outstanding subordinated notes and replace Encore's existing bank facility.

"It's more debt than normal, but Denbury as it stands is in pretty decent shape," the analyst said. "There shouldn't be a problem in terms of debt coverage. The deal opens up new territory for the company."

Denbury also plans next year to sell off non-core oil and gas properties of both companies to reduce debt from the acquisition.

Phil Rykhoek, Denbury's chief executive officer, said Monday on a conference call with analysts and investors that the company has not decided which assets will be sold yet but is open to any offers.

"We'll look at the mix of the combined entity," he said. "We figure our press release just put a for sale sign up on the front lawn."

The offer must be approved by both Denbury and Encore stockholders and receive regulatory clearances.

Denbury representatives did not return a call for additional information.

The transaction is expected to close in the first quarter of 2010.

Rykhoek estimates the deal will close toward the "latter end of the first quarter."

Encore shares jumped $7.60, or 20.50%, to close at $44.67.

Shares of Fort Worth-based Encore Energy Partners fell 2 cents, or 0.11%, to $17.98.

Agrium seen as three-way tiebreaker

Sioux City, Iowa-based Terra said in a statement sent to Prospect News late Sunday that the nitrogen producer will review CF Industries' latest buyout proposal of $32.00 in cash and 0.1034 of a share of CF Industries stock for each Terra share.

CF Industries raised its offer on Sunday from its previously revised all-stock bid of 0.465 of a share of CF Industries for each share of Terra. The new deal values Terra at $40.61 a share.

Edlain Rodriguez, an analyst with Broadpoint Amtech, Inc., told Prospect News on Monday that the revised offer does not really up the stakes much.

"At the end of the day, it's only about $2.00 more than the previous bid," Rodriguez said. "The news today depends on what Agrium is going to end up doing with CF. If Agrium makes a compelling bid for CF, it could definitely change the dynamics of that three-way battle."

Calgary, Alta.-based Agrium's tender offer for CF Industries shares at $40.00 in cash plus one Agrium share per CF Industries share expires on Nov. 13.

In the meantime, CF Industries also has three nominees up for election to Terra's board of directors at the company's annual shareholders meeting on Nov. 20.

Deerfield, Ill.-based CF Industries said in a statement that Morgan Stanley has committed $2.5 billion to provide the funds required for a takeover of Terra, but the commitment expires on Nov. 30 if the companies have not agreed to a merger.

Stephen R. Wilson, CF Industries' chairman, president and CEO, said in a letter sent to Terra that the company may extend the financing commitment until Dec. 31.

Shares of Terra added $2.14, or 6.74%, to close Monday at $33.91.

CF Industries' stock rose 84 cents, or 1.01%, to $84.09.

Agrium shares closed up 79 cents, or 1.68%, at $47.74.

Black & Decker takes offer

In a statement late Monday, Stanley Works said Black & Decker shareholders will receive a fixed ratio of 1.275 shares for each share of Black & Decker, an offer that represents a premium of 22.1% to Black & Decker's stock price on Friday.

"While we are pleased with the initial premium of approximately 22%, the driving motivation of the transaction is the present value of the $350 million in annual cost synergies," Black & Decker CEO Nolan Archibald said in the statement.

The transaction is subject to regulatory approvals and shareholder approvals from New Britain, Conn.-based Stanley Works and Towson, Md.-based Black & Decker.

The deal is expected to close in the first half of 2010.

"This is a unique opportunity to bring together two great companies, each with first-rate brands, and provide enhanced opportunities to generate superior returns as we build on this new, larger platform," John F. Lundgren, Stanley Works' chairman and CEO, said in the statement.

Black & Decker shares closed up 12 cents, or 0.25%, at $47.34, but soon jumped more than 22% in after-hours trading.

Shares of Stanley Works fell 8 cents, or 0.18%, to end at $45.15.

Mentioned in this article:

Agrium Inc. NYSE: AGU

Black & Decker Corp. NYSE: BDK

CF Industries Holdings, Inc. NYSE: CF

Denbury Resources Inc. NYSE: DNR

Encore Acquisition Co. NYSE: EAC

Encore Energy Partners LP NYSE: ENP

Stanley Works NYSE: SWK

Terra Industries Inc. NYSE: TRA

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