Oil & Gas Giant Chevron Agrees To Acquire Hess Corp At A Premium

Chevron Corp CVX shares are trading lower by around 3% after it penned a deal to acquire Hess Corp HES for $53 billion or $171 per share in an all-stock transaction.

The transaction price represents a premium of 10.3% on a 20-day average based on closing prices on October 20, 2023.

As per the terms, HES' shareholders will get 1.0250 shares of CVX for each stock held. The deal's total enterprise value, including debt, is $60 billion.

The acquisition is projected to enhance and diversify CVX's portfolio, with the addition of the Stabroek block in Guyana that is expected to deliver production growth into the next decade. 

The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close in H1 2024, subject to HES' shareholder approval and regulatory and other customary closing conditions.

"Building on our track record of successful transactions, the addition of Hess is expected to extend further Chevron's free cash flow growth. With greater confidence in projected long-term cash generation, Chevron intends to return more cash to shareholders with higher dividend per share growth and higher share repurchases." said Pierre Breber, Chevron's CFO. 

Synergy: The combined company is anticipated to enhance production and free cash flow faster and longer than CVX's current five-year guidance. HES' CEO, John Hess, will join CVX' Board of Directors. 

The transaction is projected to be accretive to cash flow per share in 2025 after achieving synergies and the start-up of the fourth floating production storage and offloading vessel in Guyana.

Post-deal closure, CVX plans to boost share repurchases by $2.5 billion to the top end of its guidance range of $20 billion/annually in a continued upside oil price scenario.

The combined company's capital expenditures budget is projected to be between $19 billion and $22 billion.

Also, CVX anticipates boosting asset sales and garnering $10 billion to $15 billion in before-tax proceeds through 2028, with the deal expected to achieve run-rate cost synergies of about $1 billion before tax within a year of closing.

As of June 30, 2023, CVX held cash and equivalents of $9.6 billion. 

Price Action: CVX shares are down 3.19% at $161.50 premarket on the last check Monday.