425: SM Energy Supplements Merger Proxy Amid Shareholder Demands

SM Energy Company has filed supplemental disclosures for its merger with Civitas Resources, Inc. to address shareholder demand letters alleging deficiencies in the joint proxy statement.

Summary

• SM Energy Company (SM Energy) and Civitas Resources, Inc. (Civitas) are proceeding with their previously announced merger, which involves two sequential company mergers.
• The company received multiple demand letters from purported stockholders alleging disclosure deficiencies and/or incomplete information in the Joint Proxy Statement/Prospectus related to the Mergers.
• To avoid potential delays, nuisance, and litigation expenses, SM Energy is voluntarily making supplemental disclosures without admitting any liability or wrongdoing.
• The supplemental disclosures include revised and supplemented information regarding Net Asset Value Analyses and Discounted Cash Flow Analyses for both SM Energy and Civitas.
• The Net Asset Value analysis for SM Energy indicated an implied equity value per share range of $15.47 to $22.63, compared to its closing price of $20.54 on October 30, 2025.
• The Net Asset Value analysis for Civitas indicated an implied equity value per share range of $23.22 to $33.09, compared to its closing price of $28.72 and an implied offer price of $29.78 on October 30, 2025.
• Discounted Cash Flow analysis for SM Energy showed implied equity values per share ranging from $9.90 to $27.68 (Perpetuity Growth Rate Method) and $7.99 to $18.44 (Terminal Multiple Method).
• Discounted Cash Flow analysis for Civitas showed implied equity values per share ranging from $19.00 to $48.29 (Perpetuity Growth Rate Method) and $11.37 to $29.28 (Terminal Multiple Method).
• The supplemental disclosures also include updated Selected Publicly Traded Companies Analysis, comparing SM Energy and Civitas to peers using TEV/EBITDAX and Market Cap/CFFO multiples.
• Analyst price targets for SM Energy ranged from $19.00 to $56.00, and for Civitas from $27.00 to $80.00, as of October 30, 2025.

Sentiment

Score: 5

Explanation: The filing addresses shareholder concerns proactively to ensure the merger proceeds without delay, which is a positive. However, the existence of demand letters alleging disclosure deficiencies introduces a degree of uncertainty and potential legal risk, balancing the sentiment to neutral.

Positives

• The company is proactively making supplemental disclosures to avoid potential delays and minimize distractions, uncertainties, and expenses associated with litigation.
• The supplemental disclosures will not affect the timing of the special meetings for stockholders, scheduled for January 27, 2026.

Negatives

• SM Energy received multiple demand letters from purported stockholders alleging disclosure deficiencies and/or incomplete information regarding the Mergers.
• There is a possibility of additional similar demand letters or complaints being filed against the company or its board of directors.

Risks

• Actual results could differ materially from forward-looking statements due to various risks and uncertainties, including factors affecting financial performance and general industry/market conditions.
• The company may face further demand letters or complaints, which could lead to litigation, even though the company denies any wrongdoing or necessity for additional disclosure.
• Analyst price targets are subject to risks and uncertainties, including factors affecting the financial performance of SM Energy and Civitas, and future general industry and market conditions.

Future Outlook

The company anticipates the merger will yield various benefits, including synergies, and impact SM Energy's and Civitas's business and future financial and operating results, including projected revenues, net asset value, debt levels, leverage ratios, capital expenditures, EBITDAX, cash flow, accretion, and business and employee opportunities. These forward-looking statements are based on assumptions believed to be reasonable but are subject to known and unknown risks and uncertainties.

Management Comments

• The company and its directors deny that any further disclosure beyond what was already in the Joint Proxy Statement/Prospectus is required under applicable law.
• The company and its directors specifically deny all allegations in the Demand Letters and specifically deny that any additional disclosure was or is required and that the supplemental disclosures are otherwise material.

Industry Context

This announcement relates to a significant merger within the oil and gas industry, specifically involving two publicly traded companies, SM Energy and Civitas Resources. The detailed valuation analyses and comparisons to selected publicly traded peers (Chord Energy, Crescent Energy, Magnolia Oil & Gas, Matador Resources Company, Ovintiv, Permian Resources) reflect standard industry practices for evaluating M&A transactions and assessing relative value in the energy sector. The focus on metrics like EBITDAX and CFFO is typical for oil and gas companies, highlighting cash flow generation and enterprise value.

Comparison to Industry Standards

• SM Energy's estimated TEV / EBITDAX for 2026E is 2.4x, which is below the benchmark mean and median of 3.3x for selected publicly traded oil and gas companies.
• SM Energy's estimated TEV / EBITDAX for 2027E is 2.3x, also below the benchmark mean and median of 3.1x.
• SM Energy's estimated Market Cap / CFFO for 2026E is 1.2x, significantly lower than the benchmark mean of 2.3x and median of 2.4x.
• SM Energy's estimated Market Cap / CFFO for 2027E is 1.1x, significantly lower than the benchmark mean of 2.2x and median of 2.2x.
• Civitas's estimated TEV / EBITDAX for 2026E is 2.5x, below the benchmark mean and median of 3.3x.
• Civitas's estimated TEV / EBITDAX for 2027E is 2.4x, below the benchmark mean and median of 3.1x.
• Civitas's estimated Market Cap / CFFO for 2026E is 1.0x, significantly lower than the benchmark mean of 2.3x and median of 2.4x.
• Civitas's estimated Market Cap / CFFO for 2027E is 0.9x, significantly lower than the benchmark mean of 2.2x and median of 2.2x.
• Both SM Energy and Civitas appear to trade at lower multiples compared to the industry benchmarks (Chord Energy, Crescent Energy, Magnolia Oil & Gas, Matador Resources Company, Ovintiv, Permian Resources), suggesting potential undervaluation or specific company-related factors influencing their market perception.

Legal Proceedings

• Multiple demand letters received from purported stockholders alleging disclosure deficiencies and/or incomplete information regarding the Mergers.
• Possibility of additional similar demand letters or complaints being filed against the company or its board of directors.

Stakeholder Impact

• Shareholders of both SM Energy and Civitas are directly impacted by the merger and the associated valuation details.
• Purported stockholders have raised concerns regarding disclosure, indicating potential dissatisfaction or a desire for more transparency.
• The proactive disclosures aim to mitigate risks for the company and its board, potentially avoiding prolonged legal disputes and ensuring the merger's timely completion.

Next Steps

• Stockholders of SM Energy and Civitas are scheduled to hold special meetings on January 27, 2026, at 10:00 a.m. Mountain Time to vote on the Mergers.

Key Dates

Recommendation

The filing provides supplemental disclosures to address shareholder concerns and facilitate the ongoing merger process. While the proactive approach to mitigate potential delays is positive, the underlying allegations of disclosure deficiencies introduce a degree of uncertainty. The valuation ranges presented by Evercore for both SM Energy and Civitas, when compared to their respective closing prices and the implied offer price, suggest the merger terms are within reasonable financial advisory ranges. However, the comparative analysis against industry peers indicates both companies trade at lower multiples, which could be a factor for long-term investors. Given the merger is in progress and the company is addressing issues to keep it on track, a 'hold' recommendation is appropriate for investors awaiting the finalization of the transaction and further clarity on the combined entity's performance.

Keywords

Merger, SEC Filing, SM Energy, Civitas Resources, Proxy Statement, Disclosure, Shareholder Demands, Oil and Gas, Valuation, Net Asset Value, Discounted Cash Flow, EBITDAX, CFFO