Denbury Resources (NYSE:DNR) offers $15 a share in cash and $35 in Denbury stock for each share of Encore Acquisition Company (NASDAQ:EAC). The exact exchange ratio for the shares would be in the range of 2.1 to 2.6 depending on the price of Denbury stock prior to closing. On the basis of DNR at $15.10 a share, its 200-day average of a week ago, the deemed price of $50 an Encore share exactly matches our Net Present Value (NPV) of $50 a share and translates to a McDep Ratio of 1.00.
As a result, we remove our buy recommendation on Encore stock. We congratulate Chairman Jon Brumley, who extends his long record of making money for investors, in this case with the help of his son, Chief Executive Jonny Brumley and the people of Encore. Investors earned about 22% a year in EAC stock as it appreciated to 3.6 times from July 1, 2003 to November 2, 2009. Normalized to a conservative financial structure, the debt-adjusted total return might be about 18% a year.
Originally published on November 2, 2009.