Devon Energy, WPX Energy On Cusp Of $6B Merger- Report

Devon Energy Corp. (DVN) and WPX Energy Inc. are holding merger discussions, reports The Wall Street Journal, citing people familiar with the matter. Both companies have significant operations in the Delaware Basin.

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According to the report the companies are considering an all-stock deal that would create a massive $6 billion entity and “help the energy companies weather a prolonged industry slump”. Indeed, back in 2008 Devon Energy alone boasted a market value of over $50 billion.

An agreement could be completed as soon as today, says the Wall Street Journal, if the talks are successful. Devon has a $3.4 billion market value with WPX Energy (WPX) at $2.5 billion.

From an oil production standpoint, the merger would create one of the largest players in the exploration and production sector, with a combined output of 276.7 Mbbls/d. This breaks down into about 55% from DVN and 45% from WPX.

“If announced Monday morning (our suspicion), we believe the deal would close by year-end. We expect a deal to consist of all-stock at a zero to low single digit premium, which would allow DVN to preserve its cash rich balance sheet” commented Siebert Williams Shank & Co analyst Gabriele Sorbara.

Following the news, the analyst maintained his buy ratings on both DVN and WPX. “All in all, we believe the merger would be positively received, as if the deal were executed it would alleviate investor concerns surrounding inventory (due to its federal land exposure), driving a valuation re‐rating” he explained.

So far Devon Energy is down 65% year-to-date, while WPX has lost 67%. However both stocks still score a firmly bullish Street outlook, with significant upside potential ahead. (See Devon’s stock analysis on TipRanks)

For instance, Devon’s Strong Buy Street consensus is based on 12 recent buy ratings vs just 3 hold ratings published in the last three months. Meanwhile the average analyst price target of $16 indicates 79% upside potential from current levels.