DEFA14A: Diamondback Energy Addresses Stockholder Lawsuits with Supplemental Proxy Disclosures Amid Endeavor Merger

Diamondback Energy supplements its proxy statement with additional disclosures to address stockholder lawsuits challenging the Endeavor merger, while maintaining the belief that the lawsuits are without merit.

Summary

• Diamondback Energy is supplementing its proxy statement related to the proposed merger with Endeavor Parent, LLC, following lawsuits filed by purported stockholders.
• The lawsuits, filed in various courts, allege deficiencies in the disclosures made in the original proxy statement, specifically violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934.
• The plaintiffs seek injunctive relief to prevent the stockholder vote on the merger, rescission of the merger, or compensatory damages, along with attorneys' fees.
• Diamondback believes the lawsuits are without merit but is providing supplemental disclosures to avoid nuisance, expense, and delay.
• The supplemental disclosures include amendments and restatements of sections related to the opinion of Diamondback's financial advisor, Jefferies, specifically regarding Endeavor's standalone financial analyses and Diamondback's standalone financial analyses.
• These analyses cover discounted cash flow, net asset value, and comparable public company analysis, incorporating Diamondback management's projections and pricing estimates.
• The company reaffirms that the supplemental disclosures do not constitute an admission of legal necessity or materiality of the information disclosed.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company is facing lawsuits, it is proactively addressing the concerns and believes the lawsuits are without merit. The supplemental disclosures aim to provide more transparency and avoid potential delays.

Positives

• Diamondback is proactively addressing stockholder concerns by providing supplemental disclosures.
• The company is transparently providing additional details on the financial analyses conducted by Jefferies.
• Diamondback believes the lawsuits are without merit.

Negatives

• Diamondback is facing multiple lawsuits from stockholders challenging the merger disclosures.
• The lawsuits could potentially delay or complicate the merger process.
• The company is incurring expenses to defend against the lawsuits and provide supplemental disclosures.

Risks

• Litigation is inherently uncertain, and there is no guarantee that Diamondback will successfully defend against the lawsuits.
• Additional lawsuits related to the merger may be filed in the future.
• The merger may be delayed or terminated if the lawsuits are not resolved favorably.
• The anticipated benefits and synergies of the merger may not be realized within the expected timeframe or at all.
• The integration of Endeavor's operations may be more challenging than anticipated.
• Changes in oil and gas prices could impact the financial projections and the value of the combined company.

Future Outlook

The document contains forward-looking statements regarding the proposed merger, future performance, business strategy, and anticipated benefits, but cautions that actual outcomes could differ materially due to various risks and uncertainties.

Management Comments

• All of the defendants named in the Matters believe that the Matters are without merit.
• Diamondback has determined to voluntarily supplement the Proxy Statement with the below disclosures to moot plaintiffs disclosure claims and to avoid nuisance, potential expense and delay.
• All defendants deny all allegations in the Matters and that any additional disclosure was or is required in the Proxy Statement.

Industry Context

The document references comparable public companies in the oil and gas exploration and production industry, including ConocoPhillips, Coterra Energy, Devon Energy, EOG Resources, Ovintiv, Occidental Petroleum, and Permian Resources Corporation, providing context for Diamondback's valuation and performance relative to its peers.

Comparison to Industry Standards

• The document compares Diamondback and Endeavor to publicly traded natural gas and oil exploration and production companies such as ConocoPhillips, Coterra Energy, Devon Energy, EOG Resources, Ovintiv Inc., Occidental Petroleum Corporation, and Permian Resources Corporation.
• Jefferies derived multiples for the Endeavor Selected Companies from the following metrics: the estimated total enterprise value divided by EBITDA for calendar year 2024 (2024E EBITDA), the estimated levered free cash flow yield (calculated as EBITDA plus realized hedge gains (loss), less interest, cash taxes, and capital expenditures divided by equity value) for calendar year 2024 (2024E LFCF yield), and the estimated total enterprise value divided by EBITDA for calendar year 2025 (2025E EBITDA), and the estimated levered free cash flow yield for calendar year 2024 (2025E LFCF yield).
• The precedent transactions (each of which is currently pending) and the transaction announcement dates, were as follows: October 2023 ExxonMobil Corporation / Pioneer Natural Resources Company $61,648 92% stock / 8% cash and December 2023 Occidental Petroleum / CrownRock Minerals LLC $11,999 14% stock / 86% cash.

Legal Proceedings

• Weiss v. Diamondback Energy, Inc. et. al. Case No. 1:24-cv-02689 (S.D.N.Y. Apr 9, 2024)
• Nicosia v. Brooks et. al. Case No. 150723/2024 (Sup. Ct. Richmond Cnty. 2024)
• McDaniels v. Diamondback Energy, Inc. et. al. Case No. 1:24-cv-00469-UNA (D. Del. April 12, 2024)

Stakeholder Impact

• Shareholders: The merger and associated lawsuits could impact the value of their shares.
• Employees: The merger could lead to changes in roles and responsibilities.
• Customers: The merger could impact the company's ability to provide products and services.
• Suppliers: The merger could impact the company's relationships with its suppliers.
• Creditors: The merger could impact the company's creditworthiness.

Next Steps

• Diamondback will continue to defend against the lawsuits.
• Stockholders will vote on the proposed merger with Endeavor.
• The company will work to obtain regulatory approval for the merger.
• Diamondback will integrate Endeavor's operations if the merger is completed.

Key Dates

Keywords

Merger, Diamondback Energy, Endeavor, Proxy Statement, Lawsuits, Disclosures, Financial Analysis, Stockholders, Jefferies, Oil and Gas