WhiteHawk Energy Proposes To Combine With PHX Minerals, Inc. In Stock-for-Stock Transaction; PHX Stockholders Would Own ~61% Of The Pro Forma Equity Of Whitehawk Minerals Corporation And Receive A One-Time $0.20/Share Cash Dividend

Author: Benzinga Newsdesk | August 09, 2023 09:45am

Proposed combination would result in PHX stockholders owning majority of the pro forma equity in newly-formed, publicly traded, WhiteHawk Minerals Corporation and receiving a one-time $0.20 per share cash dividend

Proposed combination provides PHX stockholders with an ability to participate in enhanced scale and additional mineral and royalty assets in the core of the Haynesville Shale and Marcellus Shale

Encourages the PHX board of directors to engage in good-faith discussions regarding the proposed value-maximizing transaction following unwillingness to date

An affiliate of WhiteHawk Energy, LLC ("WhiteHawk"), an independent energy minerals and royalties company, today sent a letter to Mark Behrman, the Chairman of PHX Minerals, Inc.'s ("PHX") board of directors, copied in full below, with respect to its proposal to combine with PHX in a stock-for-stock transaction to form a publicly traded corporation, WhiteHawk Minerals Corporation.

Under the terms of the proposal, first made privately to PHX in a May 31, 2023 letter and revised by WhiteHawk in a June 20, 2023 letter, PHX stockholders would own approximately 61%1 of the pro forma equity of WhiteHawk Minerals Corporation and receive a one-time $0.20 per share cash dividend.

The non-binding offer was reiterated in a letter sent today to Mr. Behrman, after several unsuccessful attempts to engage PHX's board of directors and management in productive discussions. WhiteHawk is disclosing the contents of its letter in order to inform PHX stockholders of the potential opportunity to combine the two companies.

As detailed in the proposal, WhiteHawk believes a combination of the two companies will result in the following benefits to PHX stockholders:

• An enhanced pro forma asset base with WhiteHawk's 850,000 gross unit acres in the Marcellus and the Haynesville shales, two of the most prolific natural gas basins in the U.S.;
• G&A synergies of approximately $4 million per year;
• An increased stockholder payout ratio to 50% to 60% of distributable cash flow, which will increase the dividend by over 100%;
• Immediate accretion to PHX's distributable cash flow per share;
• Accelerated conversion to an increased weighting in mineral and royalty assets;
• A larger company with a more liquid stock; and
• A combined company to be led by the WhiteHawk management team, which has run publicly-traded mineral and royalty, upstream, and midstream companies totaling over $13 billion in enterprise value.

"While we have been disappointed with the engagement to date, we believe today marks a new beginning of the discussions between WhiteHawk and PHX Minerals," said Daniel C. Herz, WhiteHawk's Chairman and Chief Executive Officer. "PHX stockholders deserve the opportunity to consider and communicate directly with the company regarding their views of the substantial benefits of our proposal."

The full text of WhiteHawk's August 9, 2023 letter is included below.

Advisors

Weil, Gotshal & Manges LLP is serving as WhiteHawk's legal advisor.

WhiteHawk's August 9, 2023 Letter to PHX

August 9, 2023

PHX Minerals, Inc. Board of Directors

c/o Mark Behrman, Chairman of the Board of Directors

1320 South University Drive

Suite 720

Fort Worth, Texas 76107

Dear Mr. Behrman,

We are once again writing to reiterate an affiliate of WhiteHawk Energy, LLC's ("WhiteHawk") proposal to acquire PHX Minerals, Inc. ("PHX") common stock in a stock-for-stock transaction to form a publicly traded corporation, WhiteHawk Minerals Corporation ("WhiteHawk Minerals"), pursuant to which PHX stockholders would own approximately 61%2 of the pro forma equity of WhiteHawk Minerals and would receive a one-time $0.20 per share cash dividend (the "Proposal").

As previously noted, this Proposal would provide the following benefits to PHX's investors: (i) an enhanced pro forma asset base with WhiteHawk's 850,000 gross unit acres in the Marcellus and the Haynesville shales, two of the most prolific natural gas basins in the U.S.; (ii) G&A synergies of approximately $4 million per year; (iii) an increased stockholder payout ratio to 50% to 60% of distributable cash flow, which will increase the dividend by over 100%; (iv) immediate accretion to PHX's distributable cash flow per share; (v) accelerated conversion to an increased weighting in mineral and royalty assets; (vi) a larger company with a more liquid stock; and (vii) a combined company to be led by the WhiteHawk management team, which has run publicly-traded mineral and royalty, upstream, and midstream companies totaling over $13 billion in enterprise value.

We continue to believe that PHX stockholders stand to benefit from WhiteHawk's best-in-class natural gas mineral and royalty assets and a significant improvement to PHX's operations and strategy resulting in increased stockholder returns, all while such stockholders would retain a majority interest in WhiteHawk Minerals. More specifically, in addition to the one-time $0.20 per share cash dividend, we also plan to increase the dividend by over 100%, while maintaining a conservative payout ratio of 50-60%, which is below other public mineral and royalty companies, while reducing G&A by approximately 40% under our leadership. Following this transaction, your stockholders would own a combined business with a diversified platform that would be well-positioned for enhanced scale and additional mineral and royalty assets in the core of the Haynesville Shale and Marcellus Shale while utilizing WhiteHawk's vast resources and expertise of growing public companies to deliver outstanding investor returns.

We have made numerous attempts to engage in a constructive private dialogue with PHX's executive officers and the PHX board of directors over the past 3 months. From May 3, 2023 through May 26, 2023, we privately reached out numerous times to PHX's CEO and CFO, Chad Stephens and Ralph D'Amico, in an attempt to privately explore a potential transaction that would provide meaningful value to PHX stockholders. Our attempts were ignored and rebuffed. Finally, on May 31, 2023, we sent a formal written proposal (the "Initial Proposal"). Instead of meaningfully engaging with us, you sent a letter on June 12, 2023 (the "June 12 Letter") asserting that the Initial Proposal was "grossly inadequate" despite also stating that PHX was not "provide[d] sufficient information" to analyze the key aspects of the Initial Proposal. These contradictions raise questions as to how seriously the PHX board of directors took their duty to review and consider the Initial Proposal and to act on an informed basis. Further, you failed to provide any avenue for further discussion that would allow us to address your reasons for such a conclusion, despite our expressed willingness to provide any additional information necessary for the PHX board of directors to make a fully informed decision on the Initial Proposal.

On June 20, 2023, we sent an updated proposal (the "Revised Proposal") in response to the June 12 Letter addressing your expressed concerns, stating our willingness to provide diligence materials via a virtual data room and offering to set up an in-person meeting to discuss the Revised Proposal and answer any diligence questions the PHX board of directors may have in order to enable the PHX board of directors to make a fully informed decision on the Revised Proposal. Over five weeks later, without ever engaging in a meaningful dialogue with us regarding our assumptions in the Revised Proposal, the assets we would provide or the Revised Proposal as a whole, PHX's Chairman and CEO contacted us and advised us that PHX viewed the Revised Proposal as inadequate. The PHX board of directors followed up that conversation with a letter to us dated July 27, 2023, confirming in writing that the Revised Proposal "remains inadequate in terms of the value offered to PHX and its stockholders, involves assets that would not provide a strategic benefit to PHX, and is not in the best interests of PHX and its stockholders."

No rationale was offered with regard to the connection between PHX's limited assessment of the diligence materials provided and PHX's decision to reject the Revised Proposal. Again, PHX never engaged with us in a meaningful dialogue to fully understand and discuss the Revised Proposal, despite our expressed willingness to do so.

We firmly believe that your persistent unwillingness to engage in discussions regarding this highly beneficial transaction is contrary to the interests of PHX stockholders.

We would have preferred to work privately with you to reach an agreement for the benefit of your stockholders – and attempted to do so repeatedly – but given your refusal to engage meaningfully, we believe making our Proposal public is now the only path forward. Your stockholders deserve the opportunity to consider and communicate directly with you regarding their views of the substantial benefits of our Proposal.

Our leadership considers this transaction to be an important strategic priority. We have engaged Weil, Gotshal & Manges LLP to assist us in completing this transaction.

We stand ready to work with you immediately to move forward on the basis of the Proposal. We strongly prefer to engage in direct and constructive discussions to reach an agreement for the benefit of PHX. We hope that your board of directors, your management and your advisors are prepared to engage with us in the best interests of your deserving stockholders.

Sincerely,

/s/ Daniel C. Herz

Daniel C. Herz

Chairman and Chief Executive Officer

WhiteHawk Energy, LLC

Posted In: PHX