Falcon Minerals to Merge with Desert Peak Minerals in $1.9B Deal


Falcon Minerals Corporation (Nasdaq: FLMN, FLMNW) and Desert Peak Minerals have entered into an agreement to merge in an all-stock deal valued at $1.9 billion, creating a “premier mineral and royalty company” in the United States.

Pursuant to the agreement, Falcon Minerals will issue 235 million shares of Class C common stock to Desert Peak’s equity holders, who may receive more consideration if upon closing Desert Peak’s net debt is less than $140 million. As a result, existing Falcon shareholders will own approximately 27% of the combined company and Desert Peak’s equity holders will own the remaining 73% of the combined company. According to the filing, the deal is expected to be accretive to Falcon’s shareholders for 2022 on a cash flow per share basis. Moreover, the filings stated that based on the closing price of $5.45 for Falcon’s Class A common stock on January 11, 2022, the combined company “will have an initial equity market capitalization of approximately $1.76 billion and enterprise value of approximately $1.92 billion, including Class A and Class C common stock.”

Accordingly, the combined company will “remain focused on consolidating high-quality mineral and royalty positions in the Permian Basin while optimizing its existing asset base. It is positioned to become a leading consolidator in the space through increased scale and an experienced Board of Directors and management team with a track record of consummating large, accretive acquisitions.” As stated in the press release, the transaction will “create a premier mineral and royalty company at the front end of operators cost curves, with low leverage, an emphasis on shareholder returns and a significant footprint in the Permian Basin and Eagle Ford.”

The Permian Basin is a sedimentary basin or oil field located in western Texas and southeastern New Mexico, according to Brittanica. The Eagle Ford is a shale located in south Texas, which is drilled to produce oil and natural gas.

Furthermore, the filing notes that the combined company will have around “20 net wells normalized to a 5,000 foot basis that have either been spud or permitted,” which will help company product over the next year. Additionally, the companies expect to produce 13,500 to 14,500 barrels of oil in the first half of 2022, about 50-53% will likely be crude oil and around 73% is expected to come from the Permian Basin. The companies also noted a commitment to “developing industry-leading Environment, Social and Governance programs.”

“As we have previously communicated to our shareholders, we believe scale matters in the minerals business, as it enhances the ability to drive greater consolidation, improves access to capital, and reduces volatility caused by asset concentration,” Bryan Gunderson, President and Chief Executive Officer of Falcon, said in a press release. “We are proud of the business our management team and employees have built, and we are excited to partner with Desert Peak to provide our shareholders with a significant increase in scale and exposure to a large and diverse base of premier assets across the Permian Basin.”

As noted in the filing, the new combined company will be managed by Desert Peak’s team and headquartered in Denver, Colorado.

The deal, announced January 12, is expected to close in Q2 2022, subject to Falcon shareholder and regulatory approval; the deal is also subject to customary closing conditions.

Falcon Minerals is represented by Latham & Watkins LLP and White & Case LLP; its financial advisors are Houlihan Lokey Capital, Inc. and Barclays. Desert Peak Minerals is represented by Vinson & Elkins LLP.

Before the announcement, Falcon’s shares were valued at $5.45 on January 11. On the day of the announcement, on January 12, the shares closed at $5.02. Days later on January 14, it closed at $4.98 and as of the time of publication on January 18, stocks were at $5.01.