Bill Barrett Corporation's Stock Plunges After Announcing Merger Agreement

Markets Motley Fool

What happened

Continue Reading Below

Bill Barrett Corporation (NYSE: BBG) plunged on Wednesday and was down more than 18% at 11:00 a.m. EST. Driving the downdraft was the announcement that the DJ Basin-focused driller had agreed to combine with Fifth Creek Energy and that it would issue stock to pay down debt as well as finance future drilling activities. 

So what

Bill Barrett Corporation agreed to a strategic business combination with Fifth Creek Energy in a transaction valued at $649 million. Under the terms of the deal, each company will become subsidiaries of a new publicly listed company. Bill Barrett investors will exchange their current shares on a 1-for-1 basis with the new entity while Fifth Creek's private equity owner will receive 100 million shares in the new company. The deal will combine two drillers that have highly adjacent acreage positions, which will enable them to drill longer, higher-returning wells.

In addition to that strategic combination, Bill Barrett announced that it agreed to exchange newly issued shares to the holder of $50 million of its 7% senior notes due in 2022. Furthermore, the company also revealed a public offering of 21 million shares, which raised $105 million in cash to fund future drilling activities.

Now what

Continue Reading Below

Bill Barrett either issued or plans to issue a boatload of stock to shore up its balance sheet and merge with a peer, which is what's weighing on shares today. While those stock issuances are highly dilutive to existing investors, they will create a much stronger entity that can better weather the current oil market thanks to its increased scale and improving financial position. That makes today sell-off an intriguing opportunity for investors who want to add a potentially high-upside oil stock to their portfolio.

10 stocks we like better than Bill Barrett
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Bill Barrett wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of December 4, 2017

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.