ConocoPhillips: Strikes A Deal With Burlington Resources
The following is a summary of a UBS full-length report on this topic, dated
December 14, 2005.
* COP to acquire Burlington Resources:
COP announced it will acquire Burlington Resources (BR; rated A3 by
Moody's and BBB+ by S&P) for $92 per share, or $35.6 billion, in a 50/50
cash/stock split, representing a 20% premium to BR's pre-announcement
share price.The combined entity would be the second-largest U.S. natural
gas producer, behind BP.
* Credit metrics should weaken initially, improve thereafter:
COP's credit measures are expected to weaken as about $17.6 billion of
the transaction price will be financed through balance sheet cash,
available borrowing capacity, and new bank and bond debt. However,
considering strong expected free cash flow and COP's statement that
debt reduction will be a priority post-acquisition, we expect credit
metrics will steadily improve over coming quarters.
* Maintain Market Perform recommendation:
We believe the higher initial leverage from the transaction is offset
by the relative stability of BR's predominantly domestic assets. Given
our view that current bond spreads represent fair value, we maintain our
Market Perform opinion on COP.
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