Keane and C&J Energy Services to combine in merger of equals

C&J Energy Services (C&J) and Keane Group (Keane) announced that they have entered into a definitive agreement whereby the companies will combine in an all-stock merger of equals. The combined company will be positioned as an industry-leading, diversified oilfield services provider with a pro-forma enterprise value of approximately $1.8 billion, including $255 million of net debt.

Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of both companies and the Special Committee of the Keane Board, C&J shareholders will receive 1.6149 shares of Keane common stock for each share of C&J common stock owned. The merger agreement permits C&J to pay its shareholders a cash dividend of $1/share prior to closing. Upon closing, Keane and C&J shareholders will, in the aggregate, each own 50% of the equity of the combined company on a fully diluted basis. The share exchange is expected to be tax-free.

The merger of equals will create a leading well completion and production services company in the US, with increased scale and density across services and geographies with a prominent presence in the most active US basins. Both C&J and Keane share a commitment to safety and integrity, employee development, partnerships with blue-chip customers, technological innovation, and strong community relationships, all of which will be reflected in the operations of the combined company. On a pro-forma basis, the combined company would have approximately $4.2 billion in net revenue and approximately $636 million in adjusted EBITDA for the 12 months ended March 31, 2019. In addition, the two companies anticipate to achieve annualized run-rate cost synergies of $100 million within 12 months after closing. With approximately $173 million in cash, or $106 million after the $1/share cash dividend is paid to C&J shareholders, the combined company will have flexibility to invest in growth and technology and return capital to shareholders.

“The merger of equals unites two great companies, resulting in a broader portfolio of well completion services across an even greater footprint in the US, benefiting our combined employees, shareholders, customers, suppliers, and the communities in which we operate,” Robert Drummond, Chief Executive Officer of Keane, said. “With two strong teams, enhanced and diversified operations, a strong balance sheet, ample liquidity, attractive free cash flow and a legacy of successful R&D, the combined company will be well positioned to further invest in technology and innovation, as well as the career development of our employees to drive sustainable growth in our dynamic industry. In C&J, we’ve found a partner who is equally committed to our strong employee culture with a focus on safety and customers, with whom we are eager to join forces to leverage our combined resources and strengths.”

“This agreement to merge C&J and Keane underscores the highly complementary nature of our two platforms and cultures,” Don Gawick, President and Chief Executive Officer of C&J, said. “We are excited by the many strategic and financial benefits of this combination, including the opportunities for our employees from the greater scale and enhanced capabilities of the combined company. For the customers and markets we serve, our people will continue to deliver the highest level of customer service with quality, safety, integrity and innovation. Given the shared safety focus and passion for excellence of our highly talented workforces, I am confident that the opportunity to leverage each other’s strengths will enable a combined organization where the sum of both parts makes a much greater whole. Alongside our talented Keane colleagues, we look forward to expanding and deepening our service capabilities, enhancing our relationships with blue-chip customers and generating long-term, sustainable shareholder value.”

Compelling strategic and financial benefits of the merger of equals:

• Greater scale and density across services and geographies: Together, the combined company will have 2.3 million hydraulic fracturing horsepower (HHP) consisting of approximately 50 frac fleets, 158 wireline trucks, 81 pumpdown units, 28 coiled tubing units, 139 cementing units and 364 workover rigs, which together will create a leading US well completion and production services company. The combined company will also have a larger footprint in the most active US basins, including the Permian, Marcellus / Utica, Eagle Ford, Rockies / Bakken, Mid-Continent and California, among others.
• Significant synergies and enhanced opportunity for value creation and investment: The combined company expects to generate annualized run-rate cost synergies of approximately $100 million within a year after closing through cost reductions in sales, general and administrative expenses, supply chain management and optimization of operational processes. In addition, in the highly fragmented, dynamic and evolving oilfield services industry, the combined company is well-positioned to deliver enhanced shareholder returns given anticipated potential for growth and improved margins through the increased utilization of high quality, market ready equipment, synergy capture and benefits of size and scale. With these benefits and enhanced daily trading liquidity, the combination provides an attractive opportunity for equity investors.
• Strong financial position: Pro-forma as of 31 March 2019, the combined company will have approximately $173 million in cash, or $106 million after the cash dividend is paid to C&J shareholders, with pro-forma leverage of approximately 0.4x net debt to adjusted EBITDA. In addition, the anticipated $100 million of annualized run-rate synergies will enhance the future liquidity and financial flexibility of the combined company. The merger of equals will also be immediately accretive to cash flow per share and increase the potential for operating cash flow generation. Pro-forma as of 31 March 2019, operating cash flow for the combined company would be $686 million, which excludes the $100 million of expected annualized run-rate cost synergies.
• Complementary cultures & operating philosophy: The combined company will support sustainable growth through highly complementary services including hydraulic fracturing, cementing, coiled tubing, pumpdown and workover rigs. Keane and C&J will also share best practices for customer service and operational processes, leveraging their combined resources to enhance already strong partnerships and organizational agility. The combined company’s talented employees will drive exceptional customer service focused on delivering top-tier safety, efficiency and execution. Deeper penetration in critical growth markets will also broaden the combined company’s blue-chip customer base to include most of the largest US onshore exploration and production operators.
• Positioned for continued innovation and investment: With a shared legacy of innovative R&D and a rich portfolio of proprietary technology, the combined company will accelerate investments in continued innovation and advanced, value-added technologies. These investments will include pursuing next generation opportunities in fracking and expanding real-time data and analytics capabilities in an effort to drive operational efficiencies, reduce non-productive time (NPT), enable differentiated service to customers and lower operating costs.

Leadership, governance and headquarters

The combined company will be led by a proven management team that reflects the strengths and capabilities of both organizations. Upon close, Patrick Murray, Chairman of the C&J Board of Directors, will serve as Chair of the combined company’s Board of Directors, and Robert Drummond, Chief Executive Officer of Keane, will serve as President and Chief Executive Officer of the combined company.

Jan Kees van Gaalen, Chief Financial Officer of C&J, will serve as Executive Vice President and Chief Financial Officer of the combined company, and Gregory Powell, President and Chief Financial Officer of Keane, will serve as Executive Vice President and Chief Integration Officer of the combined company. Additional senior executives for the combined company will be selected from top talent at both companies and named prior to the close of the transaction.

Upon completion of the transaction, the combined company’s board of directors will comprise 12 directors, six of whom will be from the C&J Board, including the Chairman of C&J, and six of whom will be from the Keane Board, including the Chief Executive Officer of Keane. The combined company’s corporate headquarters will remain in Houston, Texas.

Keane and C&J each share a deep heritage and strong brand recognition and following the closing, the combined company will operate under a new corporate name and trade under a new ticker symbol that will leverage the strengths of both brands. The combined company’s corporate name and ticker will be announced prior to the close of the transaction.

Approvals and closing

The transaction has been unanimously approved by the Board of Directors of C&J. The transaction has been unanimously approved by the Board of Directors of Keane, following the unanimous recommendation of its special committee comprising independent directors. The merger is expected to close in Q4 2019, following C&J and Keane shareholder approval, regulatory approvals and receipt of other customary closing conditions.

Keane Investor Holdings LLC, which includes an affiliate of Cerberus Capital Management, Keane family and certain members of Keane management, owns approximately 49% of the outstanding shares of Keane and has entered into a support agreement to vote in favor of the transaction.

Advisors

Citi is serving as financial advisor and Schulte Roth & Zabel LLP is serving as legal advisor to Keane. Lazard is serving as financial advisor and Simpson Thacher & Bartlett is serving as legal advisor to the Special Committee of the Keane Board.

Morgan Stanley & Co. LLC is serving as lead financial advisor to C&J, and J.P. Morgan Securities LLC is also serving as a financial advisor to C&J. Kirkland & Ellis is serving as legal advisor to C&J.