Mariner Energy Trading 8% Below Apache’s Offer

Mariner Energy shares are down more than 3 percent to $21.17, on weakness attributed to a NY Times article suggesting there is concern surrounding the APA/ME deal.

On April 15 Apache Corporation (APA) announced it entered into an agreement to buy Mariner Energy (ME) for about $2. 7 billion, or $26.22 per share. Apache, the second-largest U.S. independent oil and gas producer by market capitalization behind Anadarko Petroleum (APC), said that the acquisition will provide it with a platform for growth in “deepwater exploration”, and also complement its strengths in the Gulf Shelf and the Permian basin in West Texas. Of course, that was several days before the British Petroleum (BP) oil rig disaster, which ruptured a pipeline 5,000 feet beneath the surface of the Gulf of Mexico, an unfortunate event for a company like Mariner with significant operations in the area.

Dealbook: “Apache’s chief executive, Steven Farris, must be regretting his statement at the deal’s announcement that “[t]his is the right time for us to enter the Gulf of Mexico.”

While Apache’s spokesman said as recently as Thursday that the company remains committed to the deal, the arbitrage spread reflects less confidence. Mariner is trading about 8 percent below the offer.

The concern is that offshore drilling in the Gulf may be suspended indefinitely, or at the least heavily regulated….So the question now is: Can Apache exit the deal? There is no Apache shareholder vote on the transaction, so the principal way that the company can terminate its obligations is to declare that a material adverse change has occurred. Under the deal terms, this would excuse Apache’s obligation to complete the acquisition.” [emphasis added]

Whether Apache will go ahead with its acquisition remains to be seen. The important question however, is if this is the right time for the company, from an economic standpoint (considering oil drilling costs are certain to rise after Gulf spill), to complete such a deal.

ME lost $0.67, or 3.07%, to $21.14 rtq at 2:12 E.T. in New York Stock Exchange trading.

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