VNOM - Diamondback Energy Soars On Game-Changing Acquisition

2024-02-16 01:09:29 ET

Summary

• Diamondback Energy and Endeavor Energy Resources are merging to create a large company in the oil and gas exploration and production market.
• The deal is valued at $26 billion and will result in Diamondback Energy shareholders owning 60.5% of the combined business.
• The merger is expected to generate annualized synergies of around $550 million, primarily through cost savings and resource clustering.
• In all, this seems like a fine deal for Diamondback Energy and investors should view the matter in a bullish light.

Over the past year or so, we have seen a large number of mergers and acquisitions in the oil and gas exploration and production market. When companies combine, they do so with the hope of achieving significant cost savings that they call synergies. These savings come from a number of factors, including cutting out operations that are redundant for one business but that would be required for each firm to have on its own. An accounting department would be an example. The clustering of resources can create additional synergies, and the fact that a player is larger can often mean that the firm in question can squeeze its suppliers anyway that two smaller but standalone firms might not be able to....

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