Diamondback Energy Shares Drop on $9.2 billion Deal for Shale Rival

Diamondback Energy Inc shares fell 10 percent early on Wednesday following the U.S. oil and gas producer's all-stock, $9.2 billion deal for shale rival Energen Corp.

On Tuesday, Diamondback agreed to pay about $84.95 per share for Energen, a 16 percent premium to the Birmingham, Alabama, company's close on Tuesday.. Energen shares rose 3.8 percent to $75.95 on Wednesday morning trade on the New York Stock Exchange.

Diamondback was down 10.4 percent at $119.83 per share on the NYSE.

Activist investor Corvex Management LP, which holds about 8.3 percent of Energen and had pushed for a sale of the company, signaled it intends to support the deal. The deal must be approved by shareholders of both companies and by regulators.

"The transaction is strategically compelling and delivers significant financial accretion to Energen shareholders," said Keith Meister, managing partner of Corvex Management. "The pro forma company should be poised for many years of growth at an industry leading cost structure."

The transaction, which includes assumption of $830 million in Energen debt, is expected to close by the end of year, Diamondback Chief Executive Travis Stice said on a call with investors on Wednesday.

Stice said the combined company could achieve $2 billion in synergies starting in 2019 and has the potential to add another $1 billion in cost savings and higher revenues thereafter.

"This transaction represents a transformational moment for both Diamondback and Energen shareholders as they are set to benefit from owning a milestone large-cap independent that is uniquely positioned to deliver unmatched growth and returns in the Permian basin," Stice said.

Activist investor Carl Icahn, who owns about 8.9 percent of Energen, was unavailable to comment Wednesday on whether he will support the sale.

Reporting by Collin Eaton