Southwestern Energy (SWN) has reached a $2.7 billion deal to acquire Indigo Natural Resources. Under the terms of the agreement, the company will pay $400 million in cash and about $1.6 billion in common stock. The remaining $700 million will come in the form of 5.375% senior notes due 2029. The transaction is expected to close in Q4.
The acquisition of the privately held natural gas producer should enhance the company’s position as a leader in natural gas production while complimenting the existing portfolio. Southwestern Energy also stands to gain access to low-cost premium markets in the Gulf Coast LNG corridor.
Additionally, the transaction is expected to increase Southwestern’s free cash flow to about $1.2 billion from 2021 to 2023. (See Southwestern Energy analysis on TipRanks).
“Indigo has done a terrific job building its business, and its balance sheet strength, low cost structure and high-quality acreage position in the core of the Haynesville play accelerates the delivery of our strategic goals,” said Southwestern Energy CEO Bill Way.
Following the acquisition, Southwestern Energy will operate a four rig program in 2022, placing 30 to 40 wells to sales. Some of the synergies from the transactions include about $20 million in G&A reductions. The natural gas producer also expects operational and financial cost savings.
In May, Mizuho Securities analyst Vincent Lovaglio reiterated a Hold rating on the stock. The analyst also increased the price target to $6 from $5, implying 7.53% upside potential to current levels.
Consensus among analysts is a Hold based on 2 Buys, 5 Holds, and 2 Sells. The average analyst price target of $5.32 implies 4.66% downside potential to current levels.
SWN scores a 6 out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock is likely to perform in line with market averages.
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