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Report: Chesapeake Energy has become “a potential target for acquirers”

8:42 AM EDT on May 30, 2012

When I've talked with Ogle Moles about the future of Chesapeake Energy, the big concern hasn't been bankruptcy, but a potential buyout or acquisition by an out-of-state company. This would be a double-whammy nightmare for the Oklahoma City and state economy. Not only would a lot of people lose good jobs, but a lot of good people may leave town to follow a job.

Well, that nightmare scenario may not be too far away. According to Bloomberg Business Week, Chesapeake is now a target for acquisition:

Chesapeake Energy Corp. (CHK) (CHK)’s depressed valuation is making the company a potential target for acquirers willing to bet that natural-gas prices will rebound from a decade low...

“For any of the major integrated oil companies that want to pick up reserves on the cheap, this would be a good one,” said Peter Sorrentino, who helps oversee $14.7 billion at Huntington in Cincinnati. Chesapeake and other gas producers will be “worth a whole lot more than they are today. We’ll look back on this and say, ‘Wow, this was really an opportunity.’ There may be some people that end up kicking themselves.”

Chesapeake “had a bit of a drama around it,” he said. “But that doesn’t change the fact that these are very desirable assets.”...

Chesapeake’s enterprise value (CHK), which is the sum of its equity, net debt, minority interest and preferred equity, is almost $29 billion, 9.2 times the value of its proved reserves. That’s the cheapest among U.S. oil explorers and producers and integrated oil companies with market values higher than $5 billion, data compiled by Bloomberg show. The industry is valued at a median of about 15.5 times. Chesapeake held proved reserves equivalent to 3.13 billion (CHK) barrels of oil at the end of 2011.

“There are a lot of people that talk about Chesapeake and say it’s too convoluted and too complicated to have somebody buy it out,” Dingmann said in a phone interview. “But if assets are cheap enough, buyers are going to find a way to get through all these issues.”

Chesapeake’s largest investor, Southeastern Asset Management Inc., said in a May 7 letter to the board that the company should be open to takeover offers that aren’t “lowball” bids relative to its net asset value.

I wouldn't worry about this too much. Even if Chesapeake fails or goes bankrupt, at least that one rich dude bought Dippin' Dots. He'll probably move the company here, and Oklahoma City will become the Ice Cream Capital of the Future.

Anyway, I know that a majority of the Bloomberg Business Week report is based on speculation, but it's not like it came out of The National Enquirer. Unlike The Oklahoman, it's a legitimate and well-respected publication. They're not going to interview several prominent money managers, perform weeks of research and waste 3,000 words or reporting if there wasn't a chance this could happen.

Hopefully, though, none of this comes true and Chesapeake rebounds and the company continues to grow and expand and add to our growing community. But that seems less and less likely each day. If I worked near 63rd and Western, I'd either start prepping my resume or hire a realtor in Houston...or possibly both.

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