[Editor's note: This story was updated at 12:06 p.m. CDT Nov. 14.]

In response to shareholder opposition, Callon Petroleum Co. and Carrizo Oil & Gas Inc. on Nov. 14 they unsweetened the terms of the merger between the two Houston-based independents.

Callon's initial proposal offered Carrizo a 25% premium. Under new merger terms, the premium slips into the single digits and the overall transaction value would fall by about half a billion dollars. 

Despite clamoring for consolidation for the past year, investors have largely punished stocks of merging companies, with few exceptions. For example, shares of Callon have fallen roughly 30% since the transaction with Carrizo was first announced in July.

UPDATE:

Callon Wins Over Carrizo Merger’s Biggest Opponent

The lion’s share of the negative reaction was due to the 25% premium Callon agreed to pay for Carrizo, which Callon shareholder Paulson & Co. called “unjustifiable” in a letter to Callon’s board in early September. Other complaints by Paulson included the merger taking Callon, previously a pure-play Permian operator, into the Eagle Ford.

“[Carrizo’s] inferior Eagle Ford assets will permanently reduce the attractiveness of Callon to potential acquirers,” the firm wrote in the September letter. Paulson holds about a 9.5% stake in Callon, making it the company’s third largest shareholder, according to a report by Reuters.

Callon on Nov. 14 made efforts to address these concerns with amended terms, which included reducing the equity exchange ratio for its acquisition of Carrizo to 1.75 from 2.05. The new terms will now reduce the deal’s premium to 6.7% from 25%, according to Phillips Johnston, an analyst with Capital One Securities Inc.

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Johnston also estimates the amended terms lower the total transaction value to $2.7 billion from the original $3.2 billion deal value. Callon shareholders will now also own 58% of the combined company, up from the original 54%.

“We think the new terms will eliminate most of the opposition to the deal by select CPE shareholders, so we believe there is high likelihood the deal receives approval in its current form by both sets of shareholders,” he said in a research note on Nov. 14.

Shareholders will still need to approve the merger at a special meeting rescheduled for Dec. 13. The meeting had originally been scheduled for Nov. 14. The companies also still expect to close the transaction by year-end.

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