|Shares Out. (in M):||46||P/E||N/A||N/A|
|Market Cap (in $M):||25||P/FCF||N/A||N/A|
|Net Debt (in $M):||53||EBIT||5||5|
This write-up will be necessarily brief. Magnum Hunter is a name that may bring back fond memories for energy investors in the club. The previous incarnation of Magnum Hunter was built up over twenty years and sold to Cimarex for $2.2B in 2005. The new Magnum Hunter, MHR, has at its helm the same Gary C. Evans who built the original Magnum Hunter from scratch. MHR is an independent exploration and production company engaged in many aspects of the energy business, including the acquisition of exploratory leases and producing properties, exploratory drilling, enhanced oil recovery projects, and production of oil and natural gas in the U.S. The company is active in the Williston Basin/Bakken, Appalachian Basin/Marcellus, and the South Texas/Eagle Ford.
I cannot make the case that MHR is cheap by conventional measures. You are paying for proven management to a large extent.
Today MHR announced two acquisitions: NGAS Resources, NGAS and PostRock Energy, PSTR.
I am recommending a long position in NGAS, as the arb is wide open and allows you to buy MHR ($7.20) a dollar cheaper. MHR is paying 0.0846 shares for each NGAS share, with no collars on the price of either MHR or NGAS. These two companies know each other very well so deal risk is minimal. There are real synergies involved with the merger. For those who do not wish to outright buy MHR at a 16% discount to market, MHR shares are available to short. Based upon past experience, I would anticipate 90 days for the deal to close.
The PSTR deal is half cash and half stock. It is a little different in that it will close in two phases, each of which is expected to close by Mid-January 2011. The two stages are the sale of the Wetzel County and Lewis County, W. Va assets. My calculations show $2.41 in cash and 0.388 shares of MHR per PSTR share, so the discount here is also quite wide, and I have purchased some PSTR also. Again, MHR is available to short to complete the arb.