Vanguard Natural Resources and Eagle Rock Energy Partners have entered into an agreement and plan of merger in which which a subsidiary of Vanguard will merge into Eagle Rock. The agreement involves a total consideration of US$474 million in Vanguard common units and the assumption of Eagle Rock's net debt of $140 million as of 31 March 2015. As a result of the transaction, Eagle Rock will become a wholly-owned indirect subsidiary of Vanguard.
The transaction, which has been approved by the boards of directors of both companies, will be a tax-free unit-for-unit transaction with an exchange ratio of 0.185 Vanguard common units/Eagle Rock common unit. The consideration to be received by Eagle Rock's unitholders is valued at $3.05/Eagle Rock common unit based on Vanguard's closing price as of 21 May 2015, representing a 24% premium to Eagle Rock's closing price on 21 May 2015. Vanguard and Eagle Rock expect the transaction to close in the third quarter of 2015. The merger is subject to customary closing conditions, including the approval by both the Vanguard and Eagle Rock unitholders.
Scott W. Smith, Vanguard's president and CEO said: "The transaction we announced today is another great opportunity for Vanguard and our unitholders. The assets being acquired are attractive bolt-ons to our Mid-Continent, Permian and Gulf Coast basin operations. Eagle Rock has a meaningful position in the SCOOP and STACK plays which will provide attractive drilling opportunities for the next several years. Considering the previously announced merger agreement with LRR Energy, we believe that all three companies' unitholders will benefit from a larger, more diversified entity with lower financial leverage and strong positions in several key US basins. The all-unit nature of the transaction will allow Vanguard, LRR Energy and Eagle Rock unitholders to jointly reap the value growth in an improving commodity price cycle."
Joseph A. Mills, the chairman of the board and CEO of Eagle Rock said: "We are pleased to announce our pending merger with Vanguard. We are excited about the opportunity to align with Vanguard which has a proven track record of creating value for its unitholders. We believe the transaction is compelling for Eagle Rock's unitholders by creating a significantly larger and more diverse asset base, an attractive premium and an opportunity to deliver significant value for our combined unitholders in the future. We have been very impressed with the Vanguard team and look forward to working together to successfully combine our two companies."
Image: Joseph A. Mills, CEO of Eagle Rock/ Eagle Rock