Denbury Inc. held talks with more than two dozen potential buyers and rejected two offers from Exxon Mobil Corp. before finally agreeing to sell itself to the Texas oil giant for $4.9 billion in stock last month.
Executives and their advisers spoke with more than 28 parties, from international oil majors to pipeline operators, signing confidentiality agreements with 17 of them over a two-and-a-half year period, Plano, Texas-based Denbury said in a filing Tuesday. Eventually, Exxon’s third proposal won out after months of negotiations and due diligence by Dan Ammann, the former General Motors Co. executive now running the oil giant’s low carbon solutions business.
“While a number of parties expressed various levels of interest at different points in time, ExxonMobil was the only party to provide an indication of interest above the current market price and submit a proposal to acquire Denbury,” the company said.
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Exxon’s takeover of Denbury, the country’s biggest carbon dioxide pipeline operator, is the largest single carbon-management investment since the Inflation Reduction Act passed in August. The law included landmark climate provisions, providing substantial tax incentives for companies to capture CO2 emissions and store them underground rather than pollute the atmosphere.
The deal almost didn’t happen at all, the filing shows.
As oil prices surged in late 2021, Alex van Veldhoven, then an Exxon strategic planning executive, told JPMorgan Chase & Co. bankers working for Denbury that the oil major had “determined not to move forward” with an acquisition because the company’s stock had increased beyond its valuation.
But about six months later, Neil Chapman, a top lieutenant of Exxon Chief Executive Officer Darren Woods, met Denbury CEO Chris Kendall for dinner. Chapman suggested Kendall speak with Ammann, who had just been hired by the oil major. With the backing of Woods, Ammann kept talks going and undertook more due diligence.
The passing of the Inflation Reduction Act in mid-2022 turbocharged Denbury’s stock, causing it to jump 27% in a matter of weeks and prompted several other interested parties to back out of talks. One company, described in the filing as “an integrated, international oil and natural gas company” expressed concerns over abandonment liabilities of Denbury’s legacy wells and backed out.
Ammann, Kendall and their advisers carried on talks even as several news articles, including two by Bloomberg, revealed that Denbury was entertaining the idea of a sale and that Exxon was interested, causing the stock to increase further. In early 2023, Ammann won the backing from Woods to proceed with an offer, but warned Denbury that Exxon “could only do a no-premium transaction.”
Meanwhile, Denbury’s executives showed some movement in favor of a deal rather than staying independent. The board was meeting regularly, and despite its public confidence in its CO2 operations, directors were concerned about how much it would cost to build a carbon capture and sequestration business essentially from scratch.
The board noted that the amount needed “would likely be dilutive to Denbury’s stockholders” and would come on top of the risk of cost overruns and regulatory risks, according to the filing.
Exxon made a cash offer in March for $83 a share, an 2.9% premium over the closing share price that day. Denbury countered with $97 a share, but Exxon flatly rejected the offer. In May, Exxon came back with a stock offer worth $83.10, and included a “force the vote” provision that would require Denbury to hold a shareholder vote even if executives received a better offer from a third party. Denbury rejected the offer, again arguing for a premium over the share price.
Finally, on July 10, Ammann called Kendall personally with the news that Exxon’s board had approved a final offer of $89.45 a share. The deal was secured at a 2% premium over the prior day’s share price.
Denbury shareholders still need to vote on the takeover, and would owe Exxon a break-up fee of $144 million if the deal were to fall through. No date has yet been set for the vote.
--With assistance from Mitchell Ferman.
(Updates with details starting in second paragraph.)
