DEFM14A: Berry Corp. to Merge with California Resources

Berry Corporation (bry) has entered into a definitive merger agreement with California Resources Corporation (CRC), where Berry stockholders will receive 0.0718 shares of CRC common stock for each Berry share.

Summary

• Berry Corporation (bry) will merge with California Resources Corporation (CRC), becoming a direct, wholly-owned subsidiary of CRC.
• Berry stockholders will receive 0.0718 shares of CRC Common Stock for each Berry Common Stock share they hold.
• Based on CRC's closing price on September 12, 2025, the implied value of the merger consideration was approximately $3.81 per Berry share.
• Based on CRC's closing price on November 3, 2025, the implied value of the merger consideration was approximately $3.39 per Berry share.
• The Berry Board unanimously determined the merger is advisable, fair, and in the best interests of Berry and its stockholders, recommending a vote FOR the Merger Agreement Proposal, Advisory Compensation Proposal, and Adjournment Proposal.
• The merger is expected to close in the first quarter of 2026.
• The transaction is intended to qualify as a tax-free reorganization under Section 368(a) of the U.S. Internal Revenue Code.
• Berry's outstanding equity awards (RSUs and PSUs) will either accelerate and be cashed out or convert into CRC RSUs, with performance-based awards generally converting at target or actual performance (whichever is greater).

Sentiment

Score: 8

Explanation: The filing presents a strong positive outlook for the merger, with unanimous board approval, significant expected synergies, and strategic benefits for Berry stockholders. While risks are acknowledged, the overall tone and detailed rationale emphasize enhanced value and stability for the combined entity.

Positives

• Berry stockholders will participate in a significantly larger and more diversified company (CRC) with an expanded asset portfolio, strong balance sheet, and established carbon management opportunities.
• The merger is expected to be accretive to key financial metrics for CRC, including net cash provided by operating activities and free cash flow.
• Significant annual synergies of $80 million to $90 million are anticipated within 12 months post-closing, with approximately 50% implemented within six months.
• CRC's ownership of Berry's well servicing subsidiary (CJWS) is expected to enhance well maintenance, abandonment capabilities, and operational efficiency, mitigating future cost inflation.
• The combined company will benefit from CRC's lower cost of capital and greater ability to fund business development, including capitalizing on streamlined permitting processes in California due to new legislation (SB 237).
• The fixed exchange ratio offered a premium of approximately 15% to Berry's closing stock price on September 12, 2025, and higher premiums to its 10-day, 20-day, and 30-day volume weighted average prices.
• The merger is structured as a stock-for-stock transaction, intended to qualify as a tax-free reorganization for U.S. federal income tax purposes for Berry stockholders (except for cash in lieu of fractional shares).
• Berry employees will join a larger, better-capitalized company, potentially leading to enhanced career development and advancement opportunities.

Negatives

• The fixed exchange ratio means Berry stockholders bear the risk of a decrease in CRC Common Stock's market price prior to merger completion, with no collar or value-based termination right.
• Uncertainties associated with the merger may lead to a loss of Berry's management and other key personnel, potentially affecting future business if the merger is not completed.
• Berry is expected to incur significant non-recurring transaction costs, which will be borne by Berry regardless of merger completion.
• Berry stockholders will have a significantly reduced ownership and voting interest (approximately 6%) in the combined company, leading to less influence over management.
• The merger may trigger change-in-control provisions in certain Berry agreements, potentially leading to terminations or renegotiations on less favorable terms.
• The integration of the two companies will require significant management time and focus, potentially resulting in performance shortfalls or failure to realize anticipated benefits.
• The unaudited pro forma financial information is illustrative and may not reflect actual future operating results or financial condition, and final acquisition accounting may differ materially from preliminary estimates.

Risks

• The merger is subject to conditions, including regulatory approvals (HSR Act, FPA), which may not be satisfied on a timely basis or at all, potentially delaying or preventing completion.
• Regulatory authorities may impose burdensome conditions on approvals, which CRC is not obligated to accept, potentially delaying or preventing the merger or reducing anticipated benefits.
• The Merger Agreement limits Berry's ability to pursue alternative acquisition proposals and includes a termination fee of $12,044,370 payable by Berry under certain circumstances, which could discourage other bidders.
• Uncertainty regarding the merger may adversely affect relationships with customers, suppliers, and strategic partners, and impact the ability to retain key personnel.
• The merger might be completed even if material adverse changes occur post-announcement, as some changes may not constitute a basis for termination.
• Berry stockholders will not be entitled to appraisal rights under Delaware law in connection with the merger.
• The combined company may be exposed to increased litigation following the merger, which could result in substantial costs and operational disruptions.
• The market price of CRC Common Stock after the merger may be volatile and affected by factors different from those historically affecting either company's stock.
• CRC may not achieve the anticipated benefits and synergies of the merger, or it may take longer than expected, impacting financial performance and stock price.
• The unaudited forecasted financial information is based on various assumptions and may not be realized, and actual future results may vary materially.

Future Outlook

CRC and Berry currently expect to complete the merger in the first quarter of 2026. The combined company anticipates achieving annual synergies of $80 million to $90 million within 12 months post-closing, with half of these synergies expected within six months. CRC plans to maintain roughly flat oil production and continue ordinary course operations, while leveraging Berry's assets for strategic optionality and development upside, particularly in California and the Uinta Basin.

Management Comments

• The Berry Board unanimously determined that the Merger Agreement and the transactions contemplated thereby are advisable, fair to, and in the best interests of, Berry and Berry Stockholders.
• The Berry Board unanimously approved and declared advisable the Merger Agreement and the transactions contemplated thereby.
• The Berry Board resolved to recommend Berry Stockholders approve the adoption of the Merger Agreement and approve the transactions contemplated thereby on the terms and subject to the conditions set forth in the Merger Agreement.
• The Berry Board directed that the Merger Agreement be submitted to Berry Stockholders for their adoption.
• The Berry Board recommends that Berry Stockholders vote FOR the Merger Agreement Proposal, FOR the Advisory Compensation Proposal and FOR the Adjournment Proposal.
• The Finance Committee of the CRC Board determined that the Merger Agreement and the transactions contemplated thereby are advisable to, fair to, and in the best interests of, CRC and approved and declared advisable the Merger Agreement, the issuance of shares of CRC Common Stock in the Merger and the transactions contemplated thereby.

Industry Context

This merger creates a larger, more diversified independent upstream energy and carbon management company, which is strategically important given the challenges faced by smaller-cap oil and gas companies, including valuation discounts and limited access to debt capital. The combination leverages CRC's established carbon management business and energy transition initiatives, providing Berry stockholders exposure to emerging carbon capture and storage (CCS) opportunities in California. The passage of California Senate Bill 237 (SB 237), which aims to streamline permitting for in-state oil and gas production in Kern County, is expected to benefit the combined entity, particularly given both companies' long-standing operations and regulatory expertise in California. The merger also enhances the combined company's operational scale, financial flexibility, and ability to withstand commodity price volatility.

Comparison to Industry Standards

• Small-cap sub-scale oil and gas companies like Berry have consistently traded at a discount relative to larger market cap peers, a trend the merger aims to counteract by creating a larger entity.
• Berry, on a standalone basis, faced significant challenges in accessing debt capital at attractive rates, primarily due to concerns about the California regulatory and political environment coupled with its lack of scale and diversification, a common issue for smaller players in the region.
• The combined company is expected to have a more attractive cost of capital and greater operational scale compared to Berry standalone, aligning with the industry preference for larger, more financially robust entities.
• CRC's proven history in navigating California's evolving regulatory regime provides a competitive advantage for the combined company in securing approvals and managing compliance efficiently, which is a critical factor in this highly regulated jurisdiction compared to other potential counterparties lacking such specific expertise.

Management Changes

Corporate Governance

Legal Proceedings

• Lawsuits may be filed against CRC, the CRC Board, CRC's officers, Berry, the Berry Board, or Berry's officers in connection with the Merger, which could prevent or delay completion and result in substantial costs.
• Aera LLC (a CRC subsidiary) filed a lawsuit on March 30, 2022, challenging CalGEM's denial of well stimulation treatment permits and de facto moratorium, seeking mandamus, damages, and declaratory relief. Trial is set for October 14, 2024.
• Aera LLC was involved in a settlement with a Kern County entity regarding contamination claims for $33 million, with $13 million remaining in Other Long Term Liabilities as of December 31, 2023.

Related Party Transactions

• CRC, through its wholly-owned subsidiary Aera Energy, LLC, and Berry, through its wholly-owned subsidiary Berry Petroleum Company, LLC, are co-owners and participants in three joint ventures related to oil and gas transportation activities: the South Midway Lateral Pipeline, the South Midway BDT Service Pipeline, and the North Midway Lateral Pipeline.
• CRC is a customer of CJWS, a wholly-owned subsidiary of Berry. CRC purchased services from Berry totaling $6 million in 2024 and $5 million in the first six months of 2025.
• CRC, through its wholly-owned subsidiary California Resources Elk Hills, LLC, subleases premises in Bakersfield, CA, to Berry Petroleum Company, LLC, with monthly lease payments of approximately $1.25 million per annum.

Stakeholder Impact

• Shareholders of Berry will receive CRC common stock, becoming shareholders in a larger, more diversified company with potential for increased value and liquidity, but with reduced individual ownership and voting influence.
• Employees of Berry are expected to benefit from career development and advancement opportunities within the larger, better-capitalized combined company, with retention agreements in place for executive officers.
• Customers and suppliers of both companies may experience changes in relationships due to the merger, with potential for delays or deferrals of contracts.
• Creditors of Berry will see its outstanding debt assumed by CRC, potentially improving creditworthiness and access to capital for the combined entity.
• Regulatory bodies will be involved in approving the merger, particularly under antitrust laws (HSR Act) and energy regulations (FPA), ensuring compliance and fair market practices.

Next Steps

• Berry Stockholders will hold a Special Meeting on December 15, 2025, to vote on the Merger Agreement Proposal, the Advisory Compensation Proposal, and the Adjournment Proposal.
• The Registration Statement on Form S-4, which includes the Proxy/Prospectus, needs to be declared effective by the SEC.
• The merger is subject to the expiration or termination of the waiting period under the HSR Act (expected November 10, 2025) and receipt of FERC Approval (comment date November 17, 2025).
• The merger is expected to be completed in the first quarter of 2026.
• Upon completion, Berry Common Stock will be delisted from NASDAQ and deregistered under the Exchange Act.
• CRC will cause its common stock to be issued in the merger to be approved for listing on the NYSE.

Key Dates

Recommendation

The Berry Board unanimously recommends the merger, highlighting significant strategic and financial benefits for Berry stockholders. These include participation in a larger, more diversified company with a strong balance sheet, reliable dividends, and exposure to carbon management opportunities. The transaction offers a substantial premium to Berry's recent trading prices and is expected to generate $80-$90 million in annual synergies. The merger also addresses Berry's challenges as a standalone, smaller-cap entity in accessing capital and navigating regulatory environments, particularly with new supportive California legislation. While risks like fixed exchange ratio volatility and integration challenges exist, the compelling value proposition and strategic rationale make this a strong positive for Berry stockholders.

Keywords

Merger, Acquisition, Oil and Gas, Energy Transition, SEC Filing, Proxy Statement, Stock Exchange, Corporate Governance, Shareholder Vote, California Resources Corporation, Berry Corporation, Exploration and Production, Well Servicing, Carbon Capture and Storage, Synergies, Fixed Exchange Ratio, Regulatory Approval, HSR Act, FERC Approval, Tax Reorganization