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Kerkorian's Tracinda to Buy 35% Delta Petroleum Stake

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  • Kerkorian's Tracinda to Buy 35% Delta Petroleum Stake

    Kerkorian's Tracinda to Buy 35% Delta Petroleum Stake (Update7)
    By Joe Carroll and Jim Polson

    Dec. 31 (Bloomberg) -- Kirk Kerkorian's Tracinda Corp. agreed to buy a
    35 percent stake in Delta Petroleum Corp. for $684 million in a deal
    that will help the U.S. oil and gas producer accelerate drilling.

    Delta agreed to sell Tracinda 36 million shares at $19 each, a 23
    percent premium to its Dec. 28 closing price, according to a statement
    today by the Denver-based oil company.

    Tracinda, which will get the right to nominate as much as a third of
    Delta's board, made the deal a month after withdrawing a tender offer
    for 16 percent of refiner Tesoro Corp. Delta's price-to-book-ratio, or
    share price divided by book value, is 32 percent below the average for
    its peer group, according to data compiled by Bloomberg. Before today,
    Delta had lost almost half its market value since the end of November
    2006.

    ``The million-dollar question is, what does Kerkorian see that the
    rest of Wall Street doesn't?'' David Tameron, an analyst at Wachovia
    Capital Markets LLC in Denver, said in a telephone interview. ``Before
    today, it was suspected Delta was going to be forced to do some kind
    of equity offering or sell some assets to fund drilling, or else cut
    its 2008 budget.''

    Delta rose $3.34, or 22 percent, to $18.85 on the Nasdaq Stock
    Market. The gain was Delta's biggest since October 2002.

    Exploration Plans

    Delta plans to speed up drilling in the Paradox Basin in Utah and the
    Piceance Basin in Colorado, part of a region forecast by the
    U.S. Energy Department to become the largest domestic source of
    natural gas.

    New pipelines connecting Rocky Mountain gas fields to consuming
    markets will boost demand for Delta's output, Chief Executive Officer
    Roger Parker said today on a conference call with investors.

    Morgan Stanley and Merrill Lynch & Co. advised Delta, which has posted
    losses in five straight quarters, on the transaction. Talks with
    Tracinda began about a month ago. Parker, who is also chairman, said
    he never considered selling the entire company. The agreement includes
    a $5 million breakup fee. Additional equity may be used to fund
    drilling and acquisitions, Delta said. The agreement, which allows
    Delta to use the cash without restrictions from Tracinda, will be
    submitted to shareholders for approval in February. The company's
    stock ticker is DPTR.

    First Refusal

    ``More important than the premium, in our opinion, is that DPTR
    financing concerns for the next few years are removed,'' Tameron said
    in a note to clients. ``This removes the funding overhang and removes
    any concern about its debt coverage capability.''

    Delta can't issue new stock without first offering to sell Tracinda
    enough shares to maintain its stake in the company, according to the
    agreement, which was submitted today as part of a public filing on the
    deal. Tracinda keeps that right as long as its interest in Delta
    doesn't fall below 10 percent. Delta reported reserves equivalent to
    302 billion cubic feet of gas at the end of 2006 and has said
    additional drilling may enable it to claim 4.28 trillion cubic feet of
    gas equivalent. Its 2007 drilling budget was $250 million.

    In the statement by Delta, Tracinda said it was attracted to the
    company by its strong asset base and growth potential. Tom Johnson, a
    spokesman for Tracinda, declined to comment further on the firm's
    interest in Delta.

    Energy Push

    ``Clearly, Tracinda wants to make investments in energy and here it
    comes,'' said Roger Read, an analyst at Natixis Bleichroeder in
    Houston.

    Kerkorian is paying about $4.49 per thousand cubic feet of proved
    reserves, according to Wachovia's Tameron, who said investment risks
    include declining gas prices and environmental opposition to expanded
    drilling in the Rockies. He said Delta wouldn't have been able to
    fund its $250 million capital budget for 2008 from cash flow, which
    will total about $64 million.

    ``Certainly, this means we will not be needing to look at asset
    sales,'' Parker said on the conference call.

    Delta spent $438 million acquiring reserves and exploration prospects
    in the past eight years. Parker said the 10-member board will be
    expanded to accommodate Kerkorian's nominees.

    Kerkorian, 90, was ranked as the seventh-richest American by Forbes
    magazine with an estimated net worth of $18 billion. He made much of
    his fortune from investments in movie studios, hotels, casinos and
    automakers.

    Tesoro Offer

    Tracinda withdrew its $1.4 billion tender offer for Tesoro stock after
    the San Antonio-based refiner adopted a shareholder- rights plan. The
    plan was designed to block potential acquirers from gaining control of
    Tesoro without paying a premium for all of its shares.

    The rights plan ``inhibits value for all Tesoro shareholders by, among
    other things, restricting the ability of shareholders to vote, sell or
    acquire Tesoro shares freely without fear of triggering the draconian
    provisions of the rights plan,'' Tracinda said in a Nov. 27 statement.

    Kerkorian's holdings include a stake in Las Vegas casino operator MGM
    Mirage, which he founded in 1986. His investments in Chrysler yielded
    a $2.7 billion profit when Daimler-Benz AG acquired the automaker in
    1998. His bid last year to force General Motors Corp. into an alliance
    with Renault SA and Nissan Motor Co. failed.

    To contact the reporters on this story: Joe Carroll in Chicago at
    [email protected] ; Jim Polson in New York at
    mailto:[email protected]

    December 31, 2007 16:14 EST

    From: Emil Lazarian | Ararat NewsPress
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