* Deal for $20.50/shr, a 38 pct premium
* Boone Pickens backs deal
* Stakeholders Oaktree Capital, Ares Management back deal
* Co forms special committee to evaluate offer
* CEO Miller had earlier taken co pvt in 2003
(Recasts lead, adds details, graphic, comments from Pickens'
spokesman, analysts; updates share)
By Adveith Nair and Arup Roychoudhury
BANGALORE, Nov 1 EXCO Resources' (XCO.N) CEO
Douglas Miller has teamed up with investors, including oilman
T. Boone Pickens, to bid for the gas-focused explorer for about
$4.36 billion, betting on a recovery in natural gas prices.
Gas prices NGc1 -- down over 20 percent year to date --
slumped to a 13-month low last week, but interest has been
rising in underground shale formations that could hold enough
natural gas to sate U.S. demand for a decade.
The sector has lured a slew of investments by energy firms
including from China and India and prices for natural gas are
expected to rise more than 20 percent by 2011. [ID:nNYL002050]
CEO Miller, who currently has a 2.15 percent stake in the
company, offered to buy the remaining shares at $20.50 apiece
-- a premium of 38 percent to the company's Friday close.
Miller had taken EXCO private for $18 per share in 2003. The
company went public in 2006.
Oilman and natural gas proponent Pickens, the company's
largest stakeholder Oaktree Capital Management LP, and Ares
Management LLC, have all expressed an interest in pursuing the
deal, Miller said in a letter to the company.
"Boone is limited in what he can say at this time,"
Pickens' spokesman Jay Rosser said in a statement. "He has
agreed to participate with Doug Miller in an offer to acquire
EXCO. There will be more details at a later date."
Pickens has a 5 percent stake in the company. Oaktree
Capital has a 16.4 percent stake, while Ares Management holds a
6.06 percent stake in the company, according to Thomson Reuters
At least five of EXCO's 10 directors, including Miller and
Pickens, are connected to Monday's bid.
Miller's financial advisers for the deal are J.P. Morgan
Securities LLC and Goldman Sachs & Co.
In his letter, Miller said following the deal he would
continue as CEO and the senior management team would likely
remain in place.
Miller also said he would reinvest a "significant" portion
of his equity ownership as part of the deal, with the remaining
funds coming from senior management, outside investment
partners and third-party debt financing.
The company, which derives almost all of its revenue from
natural gas, intends to form a special committee to consider
the proposal, it said.
EXCO/gas prices graphic: r.reuters.com/wam33q
Graphic on EXCO milestones: r.reuters.com/tym33q
Factbox on key shale deals since 2009 [ID:nLDE64A1DY]
Price poll graphic: r.reuters.com/pus52q
Shares of the Dallas, Texas-based EXCO touched an intra-day
high of $20.36 on the New York Stock Exchange, 14 cents below
the offer price.
Monday's news also lifted shares in EXCO's peers, including
Southwestern Energy, Range Resources (RRC.N), Petrohawk Energy
(HK.N) and Ultra Petroleum UPL.N. The Dow Jones U.S. Oil and
Gas Index .DJUSEN was up 1 percent.
Analysts, however, were divided on whether the price was
justified in a weak gas price environment.
"I think it is an aggressive premium that they are paying
here," RBC Capital Markets analyst Leo Mariani said.
"Obviously they think we are close to a bottom in natural
gas prices, as well as EXCO stock, and clearly believe that now
is the time to buy," he said.
EXCO, which also owns interest in a midstream operation,
has its main oil and gas assets in East Texas, North Louisiana,
Appalachia and the Permian basin.
Ray Deacon from Pritchard Capital put the company's net
asset value at $29 a share, and said Miller might have to hike
"I think they will have to boost the price they pay by 5-10
percent to get the deal done."
BIG BETS ON GAS
Pickens has long advocated for natural gas-fueled vehicles
and has publicly declared himself a proponent of domestically
produced natural gas.
In August, his firm, Dallas-based BP Capital said it had
acquired 599,788 shares of Quicksilver Resources Inc KWK.N,
which also recently got a buyout offer from an investor group
including its chairman and chief executive.[ID:nSGE69H0IS]
When Exxon Mobil Corp (XOM.N) agreed to buy shale gas
producer XTO Energy Inc for $30 billion in stock last December,
it rekindled interest in a sector that is expected to quadruple
its U.S. output over the next 15 years.
EXCO itself has been involved in a string of deals. Last
year, it agreed to sell more than $1.1 billion of assets in a
drive to divest non-core assets.
EXCO then began revamping its portfolio of assets and its
exposure to the gas-rich Haynesville shale by buying Common
Resources LLC in partnership with British gas producer BG Group
The company also bought some shale property from
Southwestern Energy (SWN.N) -- in which Boone Pickens' BP
Capital has a stake -- for about $355 million. [ID:nSGE65F0JB]
However, the divestitures and joint venture hurt the
company's second-quarter results. [ID:nSGE6710M3] The company
is scheduled to report third-quarter results on Tuesday.
(Additional reporting by Vaishnavi Bala and Savio D'Souza in
BANGALORE and Mike Erman in New York; Editing by Aradhana
Aravindan, Jarshad Kakkrakandy)