SM Energy, Civitas to Merge in $12.8B All-Stock Deal
The combination aims to create a scaled Permian Basin producer, but shares of both companies fell as investors weighed integration risks and a modest premium.
SM Energy and Civitas Resources have agreed to a combination valued at approximately $12.8 billion, including debt, in an all-stock deal that continues a wave of consolidation sweeping the U.S. oil and gas industry. The merger aims to create a premier independent producer with a significant footprint in the prolific Permian Basin.
Investors, however, reacted with caution to the announcement. In morning trading, shares of SM Energy (NYSE: SM) tumbled 8.6% to $19.10, while Civitas Resources (NYSE: CIVI) saw its stock decline by nearly 3% to $27.98. Such declines are common in all-stock transactions, reflecting concerns about shareholder dilution and the challenges of integrating two large operators.
The terms of the deal stipulate that Civitas stockholders will receive 1.45 shares of SM Energy common stock for each share they own. This exchange ratio implies a value of $30.29 per Civitas share, representing a modest 5% premium over the company's last closing price, according to the official announcement. Upon completion, existing Civitas shareholders will own approximately 52% of the combined entity, with SM Energy shareholders holding the remaining 48%.
The combined company will operate under the SM Energy name and ticker symbol, with its headquarters remaining in Denver, Colorado. SM Energy’s Chief Executive Officer, Herb Vogel, will lead the new organization.
"This strategic combination creates a leading oil and gas company with enhanced scale, numerous value-adding synergies, and significant free cash flow, driving superior value to stockholders," Vogel said in a statement. He praised the Civitas team for building a leading sustainable energy company, adding, "Together, we look forward to unlocking stockholder value as a unified organization."
The strategic rationale for the merger centers on achieving greater scale and efficiency. The combined company will control approximately 823,000 net acres, primarily concentrated in the Permian and DJ basins. Management expects to realize between $200 million and $300 million in annual synergies through reduced overhead and lower drilling and capital costs.
This transaction is the latest in a series of major deals in the American energy patch, as independent producers seek to bulk up to compete more effectively with industry giants. By combining operations, companies aim to cut costs, improve capital efficiency, and generate more consistent free cash flow for shareholders. Wouter van Kempen, Civitas's Interim CEO, noted the deal unlocks potential "beyond the reach of either company alone."
Despite the strategic logic, some analysts have pointed to potential risks. The modest premium offered to Civitas shareholders and the negative market reaction suggest some investor skepticism about the immediate benefits. One critical analysis noted that combining with a peer with perceived weaker financials could introduce new risks for Civitas investors and that promised synergies may not fully materialize.
The new leadership structure will see SM Energy's Herb Vogel as CEO, while Civitas's Julio Quintana will serve as Non-Executive Chairman of the 11-member board, which will be composed of six directors from SM Energy and five from Civitas. The combined company plans to maintain SM Energy's current quarterly dividend of $0.20 per share.
The merger is expected to close in the first quarter of 2026, subject to the approval of both companies' shareholders and customary regulatory clearances.