Parallel Petroleum to be bought by Apollo Global
Independent oil and gas company Parallel Petroleum Corp agreed to be bought by Apollo Global Management LLC for $3.15 per share, a premium of 11 percent to Parallel's Monday's close on Nasdaq.
Shares of Midland, Texas-based Parallel Petroleum rose as much as 12 percent on the news, but it failed to impress industry observers.
It's just a distressed asset sale. These guys were in a pretty tough spot, Raymond James analyst John Freeman said.
Parallel said in a statement it had considered other alternatives, including continuation as an independent company, an equity offering, sale of assets and mergers, but found Apollo's offer the best option.
Freeman said this was the best option Parallel had left due to an impending redetermination of their borrowing base.
I don't think anybody is too happy at selling the company at three bucks that was four times that about a year ago, he said.
The deal comes at a time when oil prices have almost doubled from the lows touched earlier this year, while gas prices have almost remained flat. Parallel Petroleum is more levered towards oil and about 72 percent of its total reserves is oil.
Even though they are getting the 11 percent premium, it is below the target price we have... I find the deal to be a little less favourable to shareholders than I would have liked, Capital One Southcoast analyst Richard Tullis said by phone.
The offer by Apollo is about 20 percent below Tullis' $4 price target on the stock.
However, Tullis said Apollo would benefit from a big increase in Parallel's production as around eight of its new wells are coming online in the Permian basin.
Apollo did not immediately return a call seeking comment.
Parallel Petroleum shares -- like many of its peers -- are down significantly from the highs hit last year as the recession strangled demand for oil and gas. The stock has traded in a range of $0.68 to $11.13 in the last one year.
The total deal value offered by Apollo, which is run by investor Leon Black, is $483 million. This includes assumption of $351 million of Parallel's debt and $132 million of cash that will be used to buy the outstanding shares of Parallel.
According to Thomson Reuters data, Parallel's market capitalization was $105.4 million, based on 41.7 million outstanding shares as of July 30, 2009.
Funds managed by Apollo have committed to provide $283.2 million of equity to complete the transaction, Parallel said in a statement.
As a part of the transaction, Parallel said it will offer to repurchase all $150 million of its senior notes due 2014, at 101 percent of face value.
Shares of the company were up 10 percent up at $3.12 Tuesday afternoon on Nasdaq. Earlier, they had touched a high of $3.19. (Additional reporting by Hezron Selvi; Editing by Unnikrishnan Nair)
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