EXCO Resources' (XCO) announcement of a $1 billion debt-financed asset acquisition from Chesapeake Energy (CHK) last week comes as a bit of a surprise in light of EXCO's already extended balance sheet. The transaction is a daring strategic move by the company and a big bite relative to its $3.2 billion Enterprise Value. Positive market reaction in the days after the announcement - the stock is up ~15% since July 3 when the acquisition was made public - is however not without merit.
Several factors make the transaction look compelling from EXCO's perspective. The deal appears attractively priced, at least based on EXCO's internally engineered reserve estimates. The acquisition includes large producing reserves base which...
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