Shares of Tellurian (NYSEMKT: TELL) surged 34.7% in July, according to data provided by S&P Global Market Intelligence. The liquified natural gas (LNG) project developer agreed to sell itself to Australian energy company Woodside Petroleum(NYSE: WDS) in an all-cash deal. It also closed the sale of its upstream natural gas assets last month.
The end of an era
Tellurian has spent the past several years working toward developing its Driftwood LNG project. The company has been looking for ways to fund that project and secure commercial customers to support its development. It had hired a financial advisor to assist it.
The advisor initially planned to explore selling Tellurian's upstream natural gas production assets to help shore up its balance sheet. It found a buyer in late May when Aethon Energy agreed to purchase the assets for $260 million and become a commercial customer for Driftwood. The deal, which closed in August, enabled it to retire $230 million of debt set to mature in 2025, giving it more breathing room.
The company had planned to continue looking for investors to help fund its Driftwood project. But Woodside Energy came along with an offer it couldn't refuse. The company agreed to buy all of Tellurian, including the Driftwood project, for $1.2 billion, or $1 per share.
The all-cash deal valued Tellurian's stock at a 75% premium to its closing price on July 19 (the day before the deal's announcement) and a 48% premium to its 30-day volume-weighted average price.
The cash sale provides substantial and certain value to Tellurian shareholders based on its price in mid-July. However, shares are still down more than 45% over the past year and 85% below their peak three years ago. Because of that, unless investors recently bought shares, the sale will lock in a steep loss.
Ultimately, Tellurian had to sell since it didn't have the financial resources to build Driftwood. It also needed to continue securing commercial customers. Woodside has the financial resources and experience to commercialize and develop LNG projects. Because of that, it should be a strong operator for the project.
Time to sell
After rallying last month, Tellurian's shares traded slightly below Woodside Energy's offer price. Because of that, there's not much upside left for investors. It's unlikely that another company will offer a higher bid. Meanwhile, there are downside risks in holding or buying in hopes of a higher bid since something could derail the Woodside deal.
Given those factors, shareholders should consider selling, while those who don't already own shares shouldn't buy them now.
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Matt DiLallo has positions in Woodside Energy Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
