Why Coastal Energy Shares Rebounded

Is this meaningful? Or just another movement?

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Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of oil exploration and production company Coastal Energy (TSX: CEN) soared 27% today after Spanish counterpart Cepsa agreed to acquire it for about $2.3 billion.

So what: The all-cash deal values Coastal at $19 per share and represents a juicy premium of about 28% to its closing price on Monday. Cepsa is making the move to expand its E&P capabilities in Southeast Asia, and given Coastal’s share-price plunge last week, management has sure found an opportune time to do it.

Now what: Cepsa will incorporate a newly controlled entity for the purchase in which investment firm Strategic Resources will be an investor. “Coastal’s business comprises a high-quality portfolio of upstream assets located in Southeast Asia, operated by talented management and dedicated employees,” Cepsa CEO Pedro Miro said in a statement. “We believe that Coastal provides a tremendous foundation for furthering our E&P strategy.” Given the overwhelming support for the sale by Coastal insiders, as well as the steep $75 million termination penalty it faces if the Board does withdraw, I think it’s fair to say that the deal is all but closed at this point.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara does not own shares in any of the companies mentioned in this report at this time.  The Motley Fool does not own shares in any of the companies mentioned.

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