DEFM14A: Viper Energy and Sitio Royalties Announce All-Equity Merger to Create Leading Permian Basin Mineral and Royalty Company

Viper Energy, Inc. and Sitio Royalties Corp. have agreed to an all-equity merger, forming a new holding company, New Viper, aimed at enhancing scale, liquidity, and capital return capabilities in the Permian Basin mineral and royalty sector.

Summary

• Viper Energy, Inc. (Viper) and Sitio Royalties Corp. (Sitio) entered into an Agreement and Plan of Merger on June 2, 2025, to combine in an all-equity transaction.
• The merger involves three steps: Sitio Merger Sub merging into Sitio, Viper Merger Sub merging into Viper, and then Sitio Opco merging into Viper Opco, with New Cobra Pubco, Inc. (New Viper) becoming the new holding company, to be renamed Viper Energy, Inc.
• Each outstanding share of Sitio Class A Common Stock will be converted into the right to receive 0.4855 shares of New Viper Class A Common Stock, while Sitio Class C Common Stock will be canceled.
• Each outstanding share of Viper Common Stock will be converted into one share of the corresponding class of New Viper Common Stock.
• Sitio Opco Units will convert into 0.4855 Viper Opco Units and 0.4855 shares of New Viper Class B Common Stock.
• Post-merger, former Viper stockholders are expected to own approximately 80% and former Sitio stockholders approximately 20% of the outstanding shares of New Viper.
• The merger is anticipated to generate over $50 million in annual synergies, primarily from general and administrative expenses and cost-of-capital savings.
• The transaction is expected to reduce Viper's dividend breakeven by approximately $2 per barrel to less than $20 WTI and allow for an increase in the base dividend to $1.32 per share (representing approximately 45% of cash available for distribution at $50 WTI).
• The Sitio Board unanimously approved the merger and recommends that Sitio stockholders vote FOR the merger and compensation proposals.
• Viper's majority stockholder, Diamondback Energy, Inc., holding approximately 53.7% of Viper's voting power, has already provided written consent, meaning no further Viper stockholder vote is required.
• The merger is expected to close in the third quarter of 2025, subject to customary closing conditions including regulatory approvals and Sitio stockholder approval.

Sentiment

Score: 8

Explanation: The document outlines a strategic all-equity merger with clear financial and operational benefits, including significant synergies, improved capital access, and a stronger market position. While standard merger risks are present, the unanimous board approvals and strong shareholder support indicate a high likelihood of successful integration and value creation. The fixed exchange ratio introduces some market risk, but the overall strategic rationale and expected financial accretion are positive.

Positives

• The all-equity transaction allows Sitio stockholders to participate in the future growth and value of the combined company.
• The merger is expected to be financially accretive and increase cash available for distributions immediately upon closing.
• Anticipated annual synergies exceeding $50 million, primarily from G&A and cost-of-capital savings, are expected to enhance profitability.
• The combined entity is projected to reduce Viper's dividend breakeven to less than $20 WTI, improving financial resilience.
• The ability to increase the base dividend to $1.32 per share (45% of cash available for distribution at $50 WTI) signals strong capital return potential.
• The merger is expected to improve access to capital and maintain an investment-grade credit rating, facilitating a near-term net debt target of $1.5 billion.
• The continuing relationship with Diamondback Energy, Inc. (expected to own ~41% of New Viper) is anticipated to drive meaningful long-term oil production growth.
• The increased market capitalization and public float of the combined company are expected to widen the viable universe of potential investors and enhance trading liquidity.
• The high-quality nature of Sitio's assets, particularly in the Permian Basin, is expected to add significant value to the combined entity.
• Viper's management team has a demonstrated history of successfully integrating merger and acquisition transactions.
• Strong support from Sitio's major stockholders (Blackstone, Kimmeridge, Oaktree), collectively holding approximately 48% of the combined voting power, significantly reduces deal uncertainty.
• The merger is intended to qualify for tax-free treatment for U.S. federal income tax purposes for Class A stockholders, minimizing immediate tax burdens.

Negatives

• The fixed exchange ratio means the value of New Viper shares received by Sitio stockholders is uncertain and will fluctuate with market prices of Viper's stock.
• Both Viper and Sitio stockholders will experience reduced ownership percentages in the new combined entity.
• Both companies are subject to restrictions on their business conduct until the merger closes, potentially limiting their ability to pursue other opportunities.
• There is a risk that third parties may delay or alter existing contracts or relationships due to the uncertainty surrounding the merger.
• Failure to attract, motivate, and retain key employees could diminish the anticipated benefits of the merger.
• Significant non-recurring transaction and merger-related costs will be incurred by both companies.
• The rights of Sitio stockholders will change as a result of the merger, governed by New Viper's corporate documents.
• Litigation related to the merger could prevent or delay its consummation or result in additional costs and damages.
• The IRS may successfully challenge the intended tax-free treatment of the Pubco Mergers, potentially making them taxable events.
• Financial forecasts are based on various assumptions that may not be realized, leading to actual results differing materially from estimates.
• The opinions of financial advisors reflect circumstances at the time of signing and may not reflect changes in market conditions or company prospects by the time of completion.
• Holders of Sitio Class A Common Stock and Viper Class A Common Stock are not entitled to appraisal rights.
• The completion of the merger may trigger change-in-control provisions in certain existing agreements, potentially leading to terminations or renegotiations on less favorable terms.
• New Viper will operate as a holding company, dependent on distributions from Viper Opco to cover expenses and pay dividends, which could be limited by financing arrangements.
• The market price for New Viper Common Stock may be affected by factors different from those historically affecting Viper or Sitio individually.
• New Viper's anticipated debt may adversely affect its financial condition and limit its ability to obtain additional financing or pursue other business opportunities.
• Potential sales of a substantial number of New Viper Class A Common Stock by major stockholders (Sitio Supporting Stockholders and Diamondback) could cause the stock price to decline.
• The New Viper Charter's designation of the Delaware Court of Chancery as the exclusive forum for certain actions could limit stockholders' ability to choose a favorable judicial forum.

Risks

• The value of New Viper shares is uncertain due to the fixed exchange ratio and potential fluctuations in Viper's stock price.
• Viper and Sitio stockholders will have reduced ownership percentages in the combined company.
• Both companies are restricted from certain transactions and actions until the merger is completed, potentially hindering business opportunities.
• Completion of the mergers is subject to various conditions, including regulatory approval, which may prevent or delay the transaction.
• Uncertainty surrounding the mergers may cause third parties to delay or defer decisions, or seek to alter existing business relationships.
• Failure to attract, motivate, and retain key employees or service providers could diminish the anticipated benefits of the mergers.
• The Merger Agreement may be terminated, leading to adverse impacts on Viper and Sitio, including financial market reactions and unrecouped costs.
• Directors and executive officers of Viper and Sitio have interests in the mergers that may differ from general stockholder interests.
• Viper or Sitio may waive closing conditions without re-soliciting stockholder approval, potentially affecting stockholder interests.
• Provisions in the Merger Agreement, such as termination fees, could discourage potential competing acquirers.
• Significant transaction and merger-related costs will be incurred by both companies.
• The rights of Sitio stockholders will change upon becoming New Viper stockholders, governed by different corporate documents.
• Litigation filed in connection with the mergers could prevent or delay consummation or result in damages.
• The IRS may successfully challenge the intended tax-free treatment of the Pubco Mergers, potentially making them taxable.
• Financial forecasts are based on assumptions that may not be realized, leading to actual results differing materially.
• Opinions of financial advisors do not reflect changes in circumstances between signing and completion of the mergers.
• Holders of Sitio Class A Common Stock and Viper Class A Common Stock are not entitled to appraisal rights.
• Completion of the mergers may trigger change in control or other provisions in certain agreements to which Sitio or its subsidiaries are a party.
• New Viper will be a holding company, dependent on distributions from Viper Opco, which could be limited by financing arrangements.
• The market price for New Viper Common Stock may be affected by factors different from those historically affecting Viper or Sitio.
• Third parties may terminate or alter existing contracts or relationships with Viper or Sitio.
• Coordinating the businesses of Viper and Sitio may be more difficult, costly, or time-consuming than expected, potentially failing to realize anticipated benefits.
• Unaudited pro forma condensed combined financial information is preliminary and actual financial position and results may differ materially.
• Declaration, payment, and amounts of dividends to New Viper Common Stock holders will be uncertain.
• New Viper's anticipated debt may adversely affect its financial condition and limit its ability to obtain additional financing and pursue other business opportunities.
• Sales or perceived sales of a substantial number of shares of New Viper Class A Common Stock by major stockholders (Sitio Supporting Stockholders and Diamondback) may cause the price to decline.
• The New Viper Charter's exclusive forum provision could limit stockholders' ability to obtain a favorable judicial forum for disputes.

Future Outlook

The combined company, New Viper, is expected to achieve greater scale and inventory depth, supporting a durable production profile and robust free cash flow over the next decade. It aims to enhance access to capital, maintain an investment-grade credit rating, and improve its ability to return capital to stockholders, driven by its strategic relationship with Diamondback Energy, Inc. The merger is anticipated to accelerate consolidation potential within the industry.

Management Comments

• Kaes Vant Hof, Chief Executive Officer of Viper Energy, Inc., stated that the Mergers will add attractive scale and inventory depth that will support Vipers durable production profile and free cash flow over the next decade.
• Christopher L. Conoscenti, Chief Executive Officer of Sitio Royalties Corp., affirmed that the Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, Sitio and its stockholders.
• Sitio management's primary recommendation to the Sitio Board was to pursue a strategic transaction with an E&P operator, influenced by market analysts and investors valuing Viper's relationship with Diamondback for drilling certainty and drop-down acquisition potential.
• Sitio management's projections indicated that operating as a standalone company would constrain its ability to execute large-scale M&A compared to the combined entity.

Industry Context

The merger reflects a broader trend of consolidation in the oil-weighted mineral and royalty interests business, driven by the increasing importance of scale to enhance growth, improve access to capital, and reduce volatility from asset concentration. The transaction aims to create a larger, more competitive entity better positioned to attract investors and pursue large-scale acquisitions in a sector facing increased competition from private equity firms, income funds, and family offices.

Comparison to Industry Standards

• Viper's primary business objective is to maintain a 'best-in-class cost structure' within the industry.
• J.P. Morgan cited Viper as an example of successful growth, partly due to its relationship with Diamondback, which provides more comfort and certainty to investors regarding drilling timelines and growth.
• Kimmeridge representatives noted that scale is increasingly important to investors in the E&P sector, including the minerals subsector, with smaller-to-mid capitalization companies struggling to gain investor attention.
• Sitio management received feedback that Viper's equity consideration was more attractive due to its liquidity and relationship with Diamondback, offering better certainty for drilling and drop-down acquisitions compared to other potential counterparties.
• Sitio's internal analysis indicated that continuing as a standalone company would constrain its ability to execute large-scale M&A due to increased competition from larger acquirers with lower costs of capital, suggesting the merger aligns with industry competitive dynamics.

Management Changes

Corporate Governance

Legal Proceedings

• Litigation filed in connection with the Mergers could prevent or delay the consummation of the Mergers or result in the payment of damages following completion.
• Viper and Sitio will promptly notify each other of any Transaction Litigation (stockholder litigation challenging the validity or legality of the Transactions) and cooperate in its defense or settlement.
• Sitio will not settle any Transaction Litigation without Viper's prior written consent.

Related Party Transactions

• Diamondback Energy, Inc. (Diamondback), which owned approximately 53.7% of Viper Common Stock as of the Merger Agreement date, is expected to own approximately 41% of New Viper Common Stock after closing.
• Diamondback currently operates approximately 59% of Viper's net royalty acreage and is expected to operate approximately 39% of New Viper's net royalty acreage after closing, indicating a significant ongoing operational relationship.
• The Diamondback Entities executed a written consent approving the merger, eliminating the need for a vote from other Viper stockholders.
• The Diamondback Entities entered into a support agreement, agreeing to assist with Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) filings and not to transfer Viper/New Viper stock for 90 days following the closing, subject to certain exceptions.
• Sitio Supporting Stockholders (Blackstone, Kimmeridge, and Oaktree), collectively holding approximately 48% of Sitio's combined voting power, entered into support agreements to vote in favor of the merger.
• New Viper's charter will permit transactions with entities in which one or more of its officers or directors are financially or otherwise interested, provided such transactions are approved by the New Viper Board.
• New Viper's charter will allow certain stockholders, officers, and directors (including non-employee directors) to conduct business that competes with New Viper and make investments in properties where New Viper may also invest, and will not impose a duty to communicate such opportunities to New Viper if not expressly offered in their capacity as a director or officer.

Stakeholder Impact

• Shareholders of Viper will own shares in a larger company with more assets but will have a smaller percentage ownership of the combined entity.
• Shareholders of Sitio will receive New Viper stock, allowing them to participate in the value and future growth of the combined company.
• Employees of Sitio may experience uncertainty about their future roles, but affected employees are guaranteed no less favorable base compensation and substantially comparable benefits and incentive opportunities for 12 months post-closing.
• Sitio's executive officers are eligible for accelerated vesting of equity awards and potential severance payments upon a qualifying termination, providing financial security.
• Business partners and other third parties of both companies may delay or defer decisions, or seek to change or cancel existing business relationships due to merger uncertainty.
• Creditors of Viper and Sitio will see certain existing debt refinanced, but New Viper's anticipated debt levels could affect its financial condition and future financing capabilities.

Next Steps

• Sitio stockholders are scheduled to hold a virtual special meeting on August 18, 2025, to vote on the merger proposal and a non-binding advisory compensation proposal.
• New Viper is expected to be renamed Viper Energy, Inc. and its Class A Common Stock will be listed for trading on the Nasdaq Stock Market under the symbol VNOM.
• New Viper is expected to assume the Viper Energy, Inc. 2024 Amended and Restated Long Term Incentive Plan.
• New Viper will file a shelf registration statement to permit the public resale of certain securities held by RRA Parties (holders of Sitio Opco Units who enter into a registration rights agreement).
• Viper and Sitio will coordinate dividend declarations to ensure stockholders do not receive two dividends or fail to receive one dividend in any quarter.
• The Company will facilitate the termination of its existing credit facility and the repayment of all obligations thereunder at or following the closing.
• The Company will cooperate with Parent on potential consent solicitations, tender/exchange offers, or redemptions related to its Existing Notes.
• Both parties will continue to use reasonable best efforts to obtain all necessary regulatory approvals and satisfy other closing conditions.

Key Dates

Recommendation

Keywords

Oil and Gas, Mineral Rights, Royalty Interests, Permian Basin, Merger, Acquisition, All-Equity Transaction, Viper Energy, Sitio Royalties, Corporate Governance, SEC Filing, DEFM14A, Shareholder Vote, Nasdaq, NYSE, Diamondback Energy, Financial Advisory, Synergies, Stock Exchange Listing, Appraisal Rights, Tax Treatment, Consolidation