By Mara LemosStein
Of DOW JONES DAILY BANKRUPTCY REVIEW
Billionaire investor Kirk Kerkorian is feeling the sting from
the failed strategic deal between Delta Petroleum Corp. (DPTR) and
Opon International LLC. As a holder of 34% of Delta's outstanding
shares, Kerkorian's Tracinda Corp. investment vehicle is carrying a
paper-loss of approximately $700 million.
Denver-based Delta saw its stock and bond prices fall last week
after it announced that discussions with Opon had broken down. Opon
and Delta had signed a non-binding agreement in March under which
Opon would invest $400 million for a 37.5% stake in some of Delta's
assets in the Vega area of the Piceance Basin in Colorado.
Delta was going to use around $225 million of the proceeds to
develop natural gas assets and the remainder to address balance
sheet needs, including debt repayment.
Tracinda held approximately 93.8 million shares in Delta as of
late May, most of which it acquired in two large tranches over the
past two years, according to Securities and Exchange Commission
filings. In February 2008, it paid $684 million, or $19 per share,
for 36 million shares of the oil and gas exploration and production
company. In another equity transaction in May 2009, Tracinda
purchased 53.3 million shares for approximately $80 million, or
$1.50 per share. The remaining 4.5 million shares were purchased in
the open market in the last two months of 2008, when Delta's shares
traded around $5 each, meaning another investment of $22 million by
Tracinda.
At a current Delta share price of 78 cents per share, Tracinda's
position in Delta Petroleum is worth approximately $73.2 million,
compared with an investment of approximately $786 million since
February 2008.
Through a spokeswoman, Tracinda declined to comment.
In late May, Delta registered Tracinda's stake with the SEC,
which enables the investment firm to sell part or all of its
position. Based on the latest regulatory filings, Tracinda hasn't
completed any sales of Delta's shares, which would require
disclosure.
Delta's motivation for seeking a strategic partner was the need
to boost its liquidity to fund growth. It reported a loss of $328.8
million in 2009, compared with a loss of $468.3 million in 2008. As
of March 31, it had $10 million in cash.
With the deal with Opon off the table, Delta now needs to seek a
new strategic partner or raise new capital in the markets.
"In our mind, they do have a very good asset, I'm sure they'll
be successful in finding another strategic [partner]," Douglas
Childs, president of Opon International, said in an interview.
Childs said that Delta didn't accept its final offer for the
Vega area assets, which was revised from the original non-binding
terms. "Delta has a good asset there and we all worked very hard to
get this thing to a point that would be acceptable to all parties,
but the final offer that we made was not acceptable to Delta," said
Childs. He declined to disclose the value of the offer that was
rejected by Delta.
Opon is an investor and developer of oil and gas assets. Its
financial partners are Deutsche Bank, Wells Fargo Bank, BBVA
Compass, N.M. Rothschild & Sons, an unnamed private equity firm
and other industry and institutional partners, according to its
website.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-Mara Lemos Stein, Dow Jones Daily Bankruptcy Review;
mara.lemos-stein@dowjones.com; 212-416-2017