(RTTNews) - Oil and gas explorer Denbury Resources Inc. (DNR: News ) and Encore Acquisition Co. (EAC: News ), a developer of oil and natural gas reserves, on Sunday revealed a definitive merger agreement, whereby Denbury would acquire Encore in a $4.5 billion cash and stock deal. The transaction includes the assumption of debt and the value of the minority interest in Encore Energy Partners LP (ENP: News ). Separately, Denbury said it is postponing the release of its third-quarter results by two days due to the transaction.

As per the agreement, Encore stockholders will receive $50.00 per share for each share of Encore common stock, comprised of $15.00 in cash and $35.00 in Denbury common stock, subject to both an election feature and a collar mechanism on the stock portion of the consideration.

In calculating the exchange ratio range for the collar mechanism, the Denbury common stock, which closed Friday's regular trade at $14.60, was initially valued at $15.10 per share. The collar mechanism is limited to a 12% upward or downward movement in the Denbury share price. The final number of Denbury shares to be issued will be adjusted based on the volume weighted average price of Denbury common stock for a 20 day trading period ending on the second day prior to closing.

Based on this mechanism, if Denbury stock trades between $13.29 and $16.91, Fort Worth, Texas-based Encore's stockholders will receive between 2.0698 and 2.6336 shares of Denbury common stock for each of their shares of Encore common stock, but not higher or lower than these share amounts if Denbury common stock trades outside this range.

Encore stockholders will also have an option to receive all stock or all cash, subject to a proration feature such that the overall mix of consideration is 70% Denbury common stock and 30% cash. Denbury expects to issue between 115 million and 146 million shares of common stock to fund the equity portion of the merger consideration.
The transaction is expected to be accretive to Denbury on a cash flow basis, between 8% and 18%, depending on the number of Denbury shares issued.

Denbury is the largest oil and natural gas operator in Mississippi, and owns the largest reserves of CO2 used for tertiary oil recovery east of the Mississippi River, along with operating acreage in the Barnett Shale play near Fort Worth, Texas. The company also holds properties in Southeast Texas.

Denbury said the deal would enable it to become one of the largest crude oil-focused, independent North American exploration and production companies. The acquisition will also create one of the largest CO2 enhanced oil recovery, or EOR, platforms diversified across the Gulf Coast and Rocky Mountain regions. This includes ownership and control of the Jackson Dome CO2 source in Mississippi and CO2 sequestration contracts secured with anthropogenic sources in the Gulf Coast, Midwest and Rockies.

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