Elliott Management Corp. made a $2 billion proposal to acquire the portion of QEP Resources Inc. that it doesn’t already own as the activist investor expands its private equity prowess into the energy space.
The New York-based hedge fund run by billionaire Paul Singer said in a letter Monday to QEP’s management that it’s willing to pay $8.75 a share in cash for the oil driller, a 44 percent premium to Friday’s closing price. The bid is subject to due diligence and also is contingent on Denver-based QEP selling its Haynesville assets, Elliott said.
QEP rose as much as 44 percent, its largest-ever intraday gain. The shares were up 39 percent to $8.48 at 3 p.m. in New York.
QEP confirmed in a statement that it had received a preliminary proposal from Elliott, which owned 5 percent of the company’s shares as of Sept. 30, according to a regulatory filing.
“The company’s board of directors intends to review Elliott’s proposal and will carefully consider the proposal in the context of the best interests of all of the company’s shareholders, taking into account the company’s other alternatives and current market conditions,” it said in the statement.
Elliott has been engaged with QEP’s management since the beginning of 2018 about how best to improve its share price. The firm backed QEP’s plan to become focused on the Permian Basin in Texas and New Mexico and sell other assets. While Elliott credited the management team for making significant strides toward achieving that goal, it contends the company is still “deeply undervalued.” The activist investor has already done extensive public due diligence on QEP and is talking with sell-side analysts, Elliott’s senior portfolio manager John Pike and portfolio manager Andrew Taylor said in the letter.
“We believe shareholders are frustrated and that a sale of the company would be the best approach to deliver maximum value to shareholders,” they said.
It’s a new play book for Elliott in energy; until now its private equity focus had been primarily in technology. Last year, Elliott made a similar proposal to acquire health records company Athenahealth Inc. for $160 a share subject to similar due diligence. After running an extensive sales process, it acquired Athenahealth with a partner, Veritas Capital, for $135 a share in a deal that valued the company at about $5.7 billion.
QEP has more than 50,000 net acres in the Permian, the most-productive oil and gas field in the U.S. The area is ripe for consolidation, analysts and investors say, because it has a lot of small and midsize operators that could benefit from pairing up to cut costs and boost production.
BP Plc, Concho Resources Inc. and Diamondback Energy Inc. all struck big deals in the Permian last year. Royal Dutch Shell Plc is in negotiations to buy Permian explorer Endeavor Energy Resources LP for about $8 billion, people familiar with the matter said last month.