PHX Minerals Inc. confirmed that its board of directors has rejected WhiteHawk Energy LLC’s previous offer to merge the two companies in a stock-for-stock transaction in a scathing letter that pronounces further discussions meritless.

WhiteHawk released a public letter on Aug. 9 proposing a merger to form a publicly traded corporation and disclosing two previous failed attempts to engage PHX Minerals.

PHX Minerals said it undertook a careful review of WhiteHawk’s offer and that it fell far short.

The company’s board unanimously determined that the proposal was “grossly inadequate in terms of the value offered to PHX and its stockholders.”

PHX Minerals also said the offer overstates the value of WhiteHawk’s assets and is “highly dilutive to PHX stockholders.”

RELATED: PHX Minerals: No Comment on WhiteHawk’s Unsolicited Merger Proposal

"Our board is committed to driving value for all stockholders and evaluates all opportunities that can help achieve that goal," said Mark T. Behrman, chairman of the board. "We recognize the time and effort WhiteHawk dedicated to presenting its proposal, but after a very thorough evaluation we do not believe it would be in the best interests of our stockholders to explore this opportunity further."

In a letter to WhiteHawk Chairman and CEO Daniel C. Herz, Behrman said the board had reviewed the proposal to form WhiteHawk Minerals Corp., with WhiteHawk owning 39% of the company and PHX stockholders owning 61%.

The board initially received an unsolicited proposal on May 31, which Behrman said was materially the same as a revised June 20 proposal.

Based on the inadequacy of the offer, PHX concluded in a July 27 letter to WhiteHawk management that the board “continues to firmly hold this view.”

Behrman also dismissed the proposed one-time $0.20 per share special cash dividend to PHX stockholders because the transaction significantly undervalues PHX and its future prospects, Behrman wrote. “This is especially true when considering that the proposed dividend would be funded using PHX's own available liquidity,” he said.

PHX Minerals also disclosed the lengths it went to in order to evaluate WhiteHawk’s assets. In 2021 and 2022, when WhiteHawk was marketing asset packages, PHX minerals elected not to bid on most of these assets, submitting a bid on only a small percentage that PHX had an interest in acquiring, but which were ultimately sold to a higher bidder.

“The conclusion to be drawn is that based on PHX's rigorous methodology for valuing mineral assets, the majority of the assets that WhiteHawk acquired did not meet PHX's criteria in 2021 and 2022, even in a significantly higher commodity price environment,” Behrman wrote.

Nevertheless, after receiving WhiteHawk’s proposal, Behrman said the company thoroughly evaluated WhiteHawk’s assets again.

“Based on these results, the board has determined that your proposal significantly overstates the value of the WhiteHawk assets and assigns a grossly insufficient value to PHX,” Behrman said. “Notably, PHX's acquisition track record and annual royalty reserve and production volume growth demonstrate that assets PHX acquires convert to production relatively quickly.”

PHX Minerals’ management and board surmised that the majority of WhiteHawk’s assets will not be developed and converted to production at the same rate as PHX Minerals’, “adding risk and uncertainty in a combined portfolio of PHX and WhiteHawk assets.”

The letter also noted that better prospects are available. The company has evaluated more than 150 potential acquisitions since 2020, resulting in 66 transactions on which PHX Minerals has closed for aggregate consideration of $114 million.

Since the beginning of 2020, PHX Minerals’ strategy has been focused on growing royalty reserves and production volumes on an accretive basis, while steadily increasing its dividend rate. During this timeframe, PHX Minerals has grown royalty reserves by more than 130%, annual royalty production volumes by more than 145% and increased its dividend to stockholders by 125%.

“Given the current environment and the availability of high-quality assets at practical valuations in our target regions that would be accretive to PHX's existing asset base, the board remains focused on our stated strategy,” Behrman wrote. “Therefore, continuing discussions with WhiteHawk would be unproductive and without merit.”

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