NGAS Takeover... Take-Under For Many Holders (NGAS, MHR)

NGAS Resources, Inc. (NASDAQ: NGAS) is no longer as actively known as it was previously.  That will change temporarily as the company is now being acquired.  The horizontal drilling and completion technology player in the southern Appalachian Basin has signed a definitive agreement with Magnum Hunter Resources Corporation (NYSE: MHR) to be acquired by Magnum Hunter.

The terms of the deal are stock-for-stock in the buyout call for each common share of NGAS for the right to receive 0.0846 of a share of Magnum Hunter common stock. The exchange ratio will not be adjusted for subsequent changes in market prices.  That figure was established based on an intra-day price of $6.50 for Magnum Hunter stock; that in turn comes to $0.55 per NGAS share before share price adjustments, what the companies call a 41% premium to the NGAS closing price on December 23, 2010.

The enterprise value of the deal was put at roughly $98 million based on NGAS having approximately 78.4 million fully diluted shares and total debt.

A Special Committee of the NGAS Resources board of directors has recommended the transaction to the full board and both boards of directors have approved the transaction.

The problem is that NGAS has a 52-week range of $0.35 to $2.14.  NGAS was also a $10.00 stock back before the energy bubble of 2007 to 2008.

The premium will be welcome to new holders this morning.  The problem is that this represents no premium to many long-term shareholders.  It is safe to assume that law firms, assuming the market cap is not too small to mess with, will file their “inquiries into whether or not the company is acting in the best interest of shareholders” as soon as this morning.

JON C. OGG