Last night, Pioneer Natural Resources (NR: NYSE:PXD) announced a definitive agreement to acquire Parsley Energy (NYSE:PE) in an all-stock deal valued at $4.5 billion, a 7.9% premium to Oct.19, 2020 closing price.
Parsley Energy will receive a fixed ratio of .1252 shares of Pioneer Natural Resources common. The acquisition is expected to close within the first quarter of 2021.
Post-deal, the combined company is expected to save $325 million in annual synergies. The deal is anticipated to be immediately accretive to cash flow per share, free cash flow per share, earnings, and corporate returns in the first year.
Total consideration for the deal is approximately $7.6 billion, including $3.1 billion in Parsley debt. On an EV/LTM EBITDA basis, the transaction is valued at 5.85x using the 2021 consensus EBITDA estimate of $1.3 billion. The deal multiple is dramatically below our target multiple of 7.0x based on our 2020 estimated Adjusted EBITDAX of $1.3 billion.
We are maintaining our Buy rating and $15 per share price target for Parsley Energy. Our price target is based on our 2020 estimated Adjusted EBITDAX of $1.3 billion using a 7.0x EV/EBITDAX target multiple.
The latest Permian Basin M&A deals are pricing below reasonable take out multiples, which is not good for long-term energy investors and prove critics correct that oil and gas producers have failed to generate value for their investors.
Price chart as of 10-21-2020
