Another big M&A announcement in the oil patch is making news after ConocoPhillips (COP) said it will buy Marathon Oil (MRO) for $17.1 billion in stock. The deal includes $5.4 billion in debt, bringing the enterprise value of the transaction to approximately $22.5 billion.
The purchase price represents a roughly 15% premium to Marathon stock's May 28 close at $26.45, sending its share price up by more than 9% Wednesday. COP stock, meanwhile, is down about 3%.
Under the agreement, Marathon shareholders will receive 0.255 shares of ConocoPhillips common stock for every share of MRO they currently own.
"This acquisition of Marathon Oil further deepens our portfolio and fits within our financial framework, adding high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position," said Ryan Lance, chairman and CEO of ConocoPhillips, in a statement.
COP said that the transaction will be immediately accretive to its earnings, cash from operations, free cash flow and return of capital per share to shareholders. It expects to achieve a $500 million in cost and capital synergy run rate within the first full year of the close of the transaction, primarily due to reduced general and administrative costs, lower operating costs and improved capital efficiencies.
Following completion of the transaction, ConocoPhillips said it expects stock buybacks to exceed $7 billion in the first full year and over $20 billion in the first three years.
Separately, ConocoPhillips said it anticipates a 34% increase to its quarterly dividend, beginning in Q4 2024. This will bring its quarterly payout to 78 cents per share.
"We plan to raise our ordinary dividend by 34% in the fourth quarter and we will continue to target top-quartile dividend growth relative to the S&P 500 going forward," Lance said. "Additionally, we intend to prioritize share repurchases following the close of the transaction, with a plan to retire the equivalent amount of newly issued equity in the transaction in two to three years at recent commodity prices."
The transaction is subject to approval by Marathon shareholders, regulatory clearance and other closing conditions, ConocoPhillips said. If all goes as planned, the transaction is expected to close in the fourth quarter of this year.
Is ConocoPhillips stock a buy, sell or hold?
Analysts are mostly upbeat toward the oil stock, which isn't unsurprising considering its averaged a total annual return (price change plus dividends) of nearly 34% over the past three years.
According to S&P Global Market Intelligence, the consensus analyst target price for COP stock is $142.81, representing implied upside of more than 24% to current levels. Meanwhile, the consensus recommendation is a Buy.
