SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(RULE 13D - 101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
(Amendment No. 1)*
Callon Petroleum Company
(Name of Issuer)
Ordinary stock, par value $0.01
(Title of Class of Securities)
13123X102
(CUSIP Number)
Christopher P. Davis, Esq.
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, New York, New York 10176
Tel. (212) 986-6000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)
October 22, 2019
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule
13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule
13d-7 for other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject
class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
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1.
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NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
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Paulson & Co. Inc.
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2.
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
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(a) [ ]
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(b) [ ]
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3.
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SEC USE ONLY
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4.
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SOURCE OF FUNDS
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OO
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5.
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6.
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CITIZENSHIP OR PLACE OF ORGANIZATION
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Delaware
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NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH:
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7.
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SOLE VOTING POWER
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21,593,523 (1)
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8.
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SHARED VOTING POWER
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0
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9.
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SOLE DISPOSITIVE POWER
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21,593,523 (1)
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10.
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SHARED DISPOSITIVE POWER
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0
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11.
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
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21,593,523 (1)
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12.
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
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13.
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
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9.5%
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14.
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TYPE OF REPORTING PERSON
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IA
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(1) See Note 1 to Item 5 below.
The following constitutes Amendment No. 1 to the Schedule 13D filed by the undersigned (“Amendment No. 1”). This
Amendment No. 1 amends the Schedule 13D as specifically set forth herein.
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Purpose of Transaction.
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Item 4 of the Schedule 13D is hereby amended by adding the following:
On October 22, 2019, Paulson sent a letter to the Board of
Directors of the Issuer (the “October Letter”) reiterating its views on the Issuer’s proposed merger with Carrizo Oil & Gas, Inc. (the “Proposed Transaction”). The foregoing is qualified in its entirety by reference to the October Letter, the
body of which is incorporated herein and attached hereto as Exhibit 99.2.
On October 22, 2019, Paulson issued a press release announcing the October Letter
and expressing its views on the Proposed Transaction (the “October Press Release”). The foregoing is qualified in its entirety by reference to the October Press Release, the body of which is incorporated herein and attached hereto as Exhibit 99.3.
On October 22, 2019, Paulson issued a presentation to proxy advisory
firms on its views on the Proposed Transaction (the “Presentation”). The foregoing is qualified in its entirety by reference to the Presentation, the body of which is incorporated herein and attached hereto as Exhibit 99.4.
| Item 6. |
Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.
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None.
| Item 7. |
Material to be Filed as Exhibits.
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Item 7 of the Schedule 13D is hereby amended by adding the following:
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Ex. 99.2 |
Letter to Board of Directors, dated as of October 22, 2019, from Paulson & Co. Inc. |
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Ex. 99.3 |
Press Release, dated as of October 22, 2019, issued by Paulson & Co. Inc.
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Ex. 99.4 |
Presentation on Callon Petroleum, dated as of October 22, 2019, by Paulson & Co. Inc.
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SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the
information with respect to it set forth in this statement is true, complete, and correct.
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PAULSON & CO. INC.
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By:
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/s/ Michael D. Waldorf
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Name: Michael D. Waldorf |
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Title: Authorized Signatory
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Paulson & Co. Reiterates Opposition to Destructive Carrizo Deal
- Transaction Destroys Shareholder Value and Permanently Impairs Company -
- Managements Set to Receive Up to $40 Million of Golden Parachutes While Shareholders Lose Money -
- Management Presents Unreliable and Incomplete Financial Information -
- If Deal Doesn’t Go Through, Board Should Immediately Explore Sale -
NEW YORK, October 22, 2019 /PRNewswire/ -- Paulson & Co. Inc. ("Paulson"), as manager of funds
holding 21.6 million shares, or 9.5% of those outstanding, of Callon Petroleum Company ("Callon" or the "Company") (NYSE: CPE), today sent a follow-up letter to the board of Callon, released a presentation exposing numerous flaws in Callon’s
statements of the purported benefits of the proposed acquisition of Carrizo Oil & Gas Inc. ("Carrizo") (NASDAQ: CRZO) and reiterated its opposition to the deal.
Paulson’s opposition is based on the following additional points:
1) The Carrizo
transaction has already destroyed substantial shareholder value and if consummated will permanently impair Callon’s value proposition. Since the deal was announced, Callon’s stock price has declined by 42%, with shareholders losing $614 million in value. This is due to the unjustified 25% premium offered to buy Carrizo and the proposed dilutive Callon share issuance of over 86%.
Even accounting for the general decline in the E&P sector, Callon’s shares have severely underperformed. Callon is clearly better off without this deal, in which case this decline should be reversed.
2) The
transaction enriches management, not shareholders. We are shocked that, as part of this transaction, Callon shareholders will entitle up to a $10.7 million golden parachute or “success fee” to Joseph Gatto, James Ulm, Michol Ecklund and
Mitzi Conn for structuring a deal in which Callon shareholders have lost over half a billion dollars. As if this weren’t enough, Callon’s shareholders must pay Carrizo management an additional $29 million in change-in-control payments. When added to financial advisory fees of $30 million, shareholders are being asked to entitle not one, but two, management teams and their
bankers nearly $70 million for the massive destruction of shareholder value. If the transaction closes, shareholders will not only suffer steep losses, they will be paying fees to the parties responsible for causing the destruction in
value. The proposed compensation agreements are an insult to shareholders and a mockery of good corporate governance.
3) Callon’s net
debt explodes from $1.2 billion to $3.5 billion while Callon inexplicably claims that this deal improves its balance sheet. Estimated annual cash interest expense and preferred dividends will nearly triple from $69 million to $184 million
annually. Based on consensus estimates, Net Debt/2020E EBITDA is expected to go from 1.9x stand-alone to 2.4x pro-forma, including preferred stock. The leverage impact from any asset sales is unclear because Callon has not provided sufficient
detail.
4) Callon
management uses unreliable and non-conforming financial metrics to try to persuade shareholders into approving this transaction. Callon seemingly overestimates what combined “free cash flow” is available for shareholders for 2020-2021. By
capitalizing cash interest expense and excluding preferred dividends ($368 million), capitalizing a portion of G&A expenses, and excluding transaction expenses of $94.5 million and contingent payments to ExL of $75 million, Callon dramatically
overstates its free cash flow projections.
5) Callon
claims that this deal is accretive on free cash flow per share, yet our calculations based on management’s disclosures imply the deal is highly dilutive. In its definitive proxy, Callon represents that on a stand-alone basis its adjusted
operating cash flow less capital expenditures for 2020-2021 equals $242 million, or $1.06/share. In comparison, in its deal press releases, Callon says that pro-forma for the merger it expects to generate $300 million of “free cash flow”, or
$0.72/share for 2020-2021. Based on these, figures, which exclude the above-mentioned costs, the proposed deal is dilutive to free cash flow per share by an
extraordinary 32%.
6) $600 million
out of the $850 million of total synergies are derived from capitalizing unrealistic operational benefits, which most analysts and investors heavily discount. In addition, Callon’s synergy projections overlook the $252 million value
transfer from the premium paid, exclude $60 million of value loss attributable to restrictions on tax attributes, and ignore the fact that the remaining purported synergies are shared 54% and 46% by Callon and Carrizo shareholders respectively.
7) If Callon’s
board really wants to maximize value for its shareholders, in the event this deal does not close, it should explore an immediate sale with the formal
engagement of independent advisers. As part of such sale, Callon must reach out to companies of all sizes, including larger ones who would be interested in entering or increasing their Permian exposure. Shareholders recognize that Callon
is too small to be cost-efficient and the best path forward to generate value is to pursue a sale of the company.
We believe that Callon’s board and management is pursuing the transaction to entrench and enrich
themselves. To justify a value-destructive deal, Callon presents shareholders with unreliable, non-GAAP financial metrics. In our view, shareholders would be better off instead if the Carrizo transaction did not proceed and Callon was to be sold.
Accordingly, Paulson will vote its shares against the Carrizo transaction and against all of the proposed shareholder resolutions.
[EMBEDDED LINK TO LETTER AND PRESENTATION]
About Paulson & Co. Inc.
Paulson, founded in 1994, is an investment management firm headquartered in New York.
Contact Details
Marcelo Kim
Paulson & Co. Inc.
212-599-6628
Cautionary Statement
Paulson & Co. Inc. ("Paulson") is not soliciting proxies in connection with any
matter brought before shareholders of the companies identified in this letter or press release.
Clients, funds and accounts managed by Paulson (the "Paulson Clients") may from time
to time beneficially own, and/or have an economic interest in, shares of the companies discussed in this letter and as a result, the Paulson Clients have an economic interest in the forward-looking statements, estimates and projections discussed
above and their impact on the companies discussed in this letter. The Paulson Clients are in the business of trading – buying and selling – securities, and may trade in the securities of the companies discussed in this letter. You should also assume
that the Paulson Clients may from time to time sell all or a portion of their holdings of one or more of the companies in open market transactions or otherwise (including via short sales), buy additional shares (in open market or privately negotiated
transactions or otherwise), or trade in options, puts, calls, swaps or other derivative instruments relating to some or all of such shares, regardless of the views expressed in this letter.
The views contained in this letter and press release represent the opinions
of Paulson as of the date hereof. Paulson reserves the right to change any of its opinions expressed herein at any time, but is under no obligation to update the data, information or opinions contained herein. Under no circumstances is this letter or
press release intended to be, nor should it be construed as advice or a recommendation to enter into or conclude any transaction or buy or sell any security (whether on the terms shown herein or otherwise). This letter should not be construed as
legal, tax, investment, financial or other advice. Additionally, this letter should not be construed as an offer to buy any investment in any fund or account managed by Paulson.
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