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Mergers &

Acquisitions
(Energy Sector)
Subject: Investment Banking
Submitted to:

Submitted by:

Prof. Neha
Patwardhan

Abhijeet Patil (15020241002)

11/16/16

Companies which are


getting merged are:

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Range Resources &


Memorial Resource
Development

Range Resources (NYSE:RRC) announced that it would be acquiring


Memorial Resource Development (NASDAQ:MRD) in an all-stock deal
valued at $4.4 billion
This merger is set to enhance Range Resources' balance sheet and
liquidity position
When adding in an attractive hedge book, this merger puts Range
Resources in a good position to weather this oil & gas downturn.

Transaction
Overview

The merged company will have an attractive liquidity position at a time


when the capital markets have been resistant towards oil and gas
companies.
Following the merger, Range Resources will have a broader asset base
with a deleveraged balance sheet and limited near term maturities
that will put the company in a much better position to survive this oil &
gas downturn.
Despite recently reported losses, Range Resources has been producing
moderate levels of cash flow and has maintained an adequate balance
sheet. There are a number of advantages to this deal and while the oil
& gas market remains weak, Range Resources is positioning itself
well to navigate a prolonged industry storm.

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While Range Resources, is certainly gaining attractive oil &


gas assets through this merger, the balance sheet and
liquidity implications are much more significant
Range Resources has outlined meaningful benefits of the
merger including improved credit metrics, cash flow figures
and a larger hedge book at attractive prices

Transaction
Overview

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Liquidity certainly comes at a premium in today's energy and a


number of notable upstream firms have been forced into
bankruptcy due to excess leverage and excessive debt
balances with debt service obligations that were unattainable

As the slide below describes, the merged Range Resources


will have an additional $1 billion in untapped credit facility
capacity and will not have any major debt maturities until
2019, which gives it a sizable cushion to navigate the
downturn.

Transaction
Overview

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Range Resources and Memorial Resource Development operate in different


geographic areas and the merged company won't gain much in terms of
operating synergies outside of management consolidation, however this will
support a more diverse production base with a strong foot in both the

Memorial Resource Development has shown the ability to


meaningfully grow its oil & gas production in recent years while
efficiently hedging its production and maintaining a healthy
balance sheet.

Summary of
Merger

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Uses of fund for the particular deal and sources of fund in terms
of common stocks is as shown data from Bloomberg.

Sources
/uses

(Source: Bloomberg)

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Parties
Involved

Uses of fund for the particular deal and sources of fund in


terms of common stocks is as shown data from Bloomberg.

Here Target and acquirer


parties details and industry
type explained with the
appropriate data which is
being required.
(Source: Bloomberg)

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Credit details
:

Uses of fund for the particular deal and sources of fund in


terms of common stocks is as shown data from Bloomberg.

Here Target and acquirer


parties details and industry
type explained with the
appropriate data which is
being required. Credit details
i.e., target and acquirer debt
to equity ratio is compared
and cost of debt
after
merging is shown.
(Source: Bloomberg)

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Market Capitalization of Target as well as acquirer is calculated as well as


enterprise value is also calculated using preferred equity and cash equivalent
available.
.

Capitalizatio
n
Here
Market
Capitalization
of
Target as well as
acquirer is calculated
as well as enterprise
value
is
also
calculated
using
preferred equity and
cash
equivalent
available.
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(Source:
Bloomberg)

10

Financials of
company
Here
Financials
of
Target and Acquirer
company is calculated
to know the merger
will prove to be a good
one or not.
Along with that Net
income and EBITDA is
calculated
from
profarma speed.
11/16/16

(Source: Bloomberg)

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1. While the performance of Range Resources' share price


following this merger will be highly dependent on
developments in the oil & gas market including price
trends, the company is setting itself up to maintain a
relatively deleveraged balance sheet through this
downturn.

Other
Details

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2. The company's shares fell rather substantially on the


news of this merger, as investors are concerned
about the dilution that this deal would bring to
current Range Resources shareholders.
3. This merger makes strategic sense for Range
Resources as the firm will be in a much better liquidity
situation which will help it avoid tapping the capital
markets at unattractive rates.
4. Strong anticipated cash flows combined with limited
near term debt maturities should allow Range
Resources to emerge from the oil & gas downturn in a
better position.

12

Product
lines

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1. W

13

Timeline of
Events

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Transaction
Multiples

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15

Transaction
Multiples

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16

Technical Analysis on Bloomberg: Candle stick

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Technical Analysis on Bloomberg: Candle stick


Candle stick chart :
Of Japanese origin and similar to OHLC, candlesticks widen and fill the interval between the
open and close prices to emphasize the open/close relationship. In the West, often black or
red candle bodies represent a close lower than the open, while white, green or blue candles
represent a close higher than the open price.

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Technical Analysis on Bloomberg: Ichimoku


Ichimoku is a moving average-based trend identification system and because it
contains more data points than standardcandlestick charts, it provides a clearer
picture of potential price action. The main difference between how moving averages
are plotted in ichimoku as opposed to other methods is that ichimoku's lines are
constructed using the 50% point of the highs and lows as opposed to the candle's
closing price

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Technical Analysis on Bloomberg: Trade Envelope


'Envelope' A type oftechnicalindicator typically formed by two moving averages that define
upper and lower price range levels. Anenvelopeis atechnicalindicator used by investors
andtradersto help identify extreme overbought and oversold conditions in a market.

an average over a window of time before and after a given time point that is repeated at each
time point in the given chart. A moving average can be thought of as a kind of dynamic trend11/16/16
line.

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Technical Analysis on Bloomberg: CCI


Thecommodity channel index(CCI) is an oscillator originally introduced by Donald Lambert in
1980. Since its introduction, the indicator has grown in popularity and is now a very common tool
for traders in identifying cyclical trends not only incommodities, but also equities and currencies.

CCI measures the difference between a security's price change and its average price change.
High positive readings indicate that prices are well above their average, which is a show of
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strength. Low negative readings indicate that prices are well below their average, which is a

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Technical Analysis on Bloomberg: SMA


Asimple moving average(SMA) is an arithmeticmoving averagecalculated by adding the
closing price of the security for a number of time periods and then dividing this total by the
number of time periods.

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Technical Analysis on Bloomberg: MACD


The MACD fluctuates above and below the zero line as the moving averages converge, cross and
diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to
generate signals. Because the MACD is unbounded, it is not particularly useful for identifying
overbought and oversold levels.

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Arbitrage of Merger
Riskarbitrage, ormerger arbitrage, is an investment or trading strategy often associated with
hedge funds. Two principal types ofmergerare possible: a cash merger, and a stockmerger. In a
cashmerger, an acquirer proposes to purchase the shares of the target for a certain price in
cash..

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The deal as per the EPS post merger has increased


considerably which showed that the risk and the
calculations proved for Diageo

Conclusion

The all cash deal was the main


considered as being aggressive
industry.

point as it was
dealing in the

The technical analysis has revealed that the deal was


anticipated to be negative and down trend but in
hindsight this deal proved to be the game changer for
company

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