2023-10-23 13:40:03 ET
Chevron ( NYSE: CVX ) appears to be getting a bargain with its $171-a-share planned takeove r of Hess ( NYSE: HES ), according to Sankey Research.
"It is a little bit of a light price," Paul Sankey of Sankey Research said in an interview with CNBC earlier, saying that he expected more than a 5% premium for Hess ( HES ). "That does raise questions for the rest of the sector, I think, who don't have the asset base of Hess."
"It was really a question of could Chevron get Hess," Sankey added. "Frankly, I didn't think they could. I'm delighted for Chevron, and I think for John Hess, it's a tremendous end to his career as a CEO."
"I didn't think they could get it for a 5% premium," Sankey said. "We were talking $200 a share. That's in range with the highest price targets on the street, so you are $20 below that, and that was the stretch target. The average street price target was around $170 where it went out, but of course that doesn't include a takeover premium."
Sankey believes the knee-jerk reaction to the combination is that it's a negative for Occidental Petroleum ( NYSE: OXY ) because there was hope that Chevron ( CVX ) would buy OXY. Occidental shares fell 3.4% on Monday.
Sankey said companies like Devon Energy ( DVN ) and Marathon Oil ( MRO ) to become larger.
"These guys really need to get bigger," Sankey explained "What we are seeing here is that medium-ranked companies are getting a poor multiple. "And as you get bigger, you get a better multiple, so the bigger the better right now, and all the highest multiples are Exxon ( XOM ) and Chevron. The next was Hess."
Sankey's comments come after Bloomberg on Wednesday reported that Devon ( DVN ) was considering major acquisition targets as it seeks to gain scale in U.S. shale, and has held preliminary talks in recent months about a combination with Marathon Oil ( MRO ).
Reuters on Tuesday also reported that Chesapeake Energy ( CHK ) had approached Southwestern Energy ( SWN ) about a potential about a potential acquisition.
More on Chevron, Hess, etc.
- Chevron Makes Its $53B Move For Hess Corporation's Guyana Crown Jewel
- Chevron: Surprising But Delightful Deal For Hess Announcement
- Chevron Buys Low, Exxon Buys High
- Chevron doesn't see antitrust issues with $53B Hess takeover
- Hess shares little changed after blockbuster Chevron takeover
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Hess $171 a share takeover price seems low, analyst says