first_imgPremier Oil shares surge on merger news. Is Tullow Oil next? See all posts by Roland Head Image source: Getty Images. “This Stock Could Be Like Buying Amazon in 1997” The Premier Oil (LSE: PMO) share price has surged higher after the company announced plans to merge with privately-owned North Sea operator Chrysaor. The deal should secure Premier’s future and create a larger, more secure business.Here, I’ll explain why I think Premier Oil shareholders should probably sit tight. I’ll also look at whether Africa-focused producer Tullow Oil (LSE: TLW) could be the next crash casualty to attract a takeover bid.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Premier Oil shares: a tight squeezeIn my last article on Premier Oil I warned that the group’s debt looked unsustainable. I suggested shareholders could face a total loss if the firm failed in its efforts to raise at least $325m by issuing new shares.Fortunately, that risk has now been eliminated. Today’s merger news means the planned fundraising is no longer needed. Instead, Chrysaor will repay Premier’s $2.7bn debt mountain and refinance the business more sustainably.What’s really happening is that Chrysaor is taking control of Premier by using a mix of cash and new shares to repay Premier’s lenders. The combined business will then trade under Premier’s existing stock market listing.As part of the deal, Premier’s lenders will be given shares in the combined business. Owners of existing Premier Oil shares will end up owning just 5.5% of the new group.Why I’d keep holding PMODespite the dilution faced by shareholders, I think this is probably a good deal. The combined business should have production of around 250,000 barrels per day, nearly four times Premier’s output.Estimated operating costs of $10.50 per barrel are 23% lower than those reported by Premier during the first half of this year.Shareholders should also enjoy a greater share of future returns too. Whereas Premier used all of its spare cash to repay debt, the new business is expected to pay dividends.Chrysaor’s shareholders will own 77% of the combined group. I don’t think they’d support this deal if they didn’t think it would earn them a positive return. I’ve upgraded my rating on Premier Oil shares to hold.Tullow Oil: the next takeover target?Shares in Africa-focused Tullow Oil have fallen by more than 90% over the 12 months, as the firm has suffered technical and financial problems.The firm now has a new CEO, Rahul Dhir, with plenty of relevant experience. But Tullow’s half-year results in September warned that the company could breach some of the terms and conditions on its lending next year if oil prices don’t improve.Tullow’s net debt of $3bn remains far too high for comfort, in my view. I think it’s likely Dhir will be forced to sell key assets, or seek out a buyer for the whole company.However, there’s also a risk the firm will struggle on for years, servicing its debts, but doing little more. In a situation like this, shareholders face a lot of risks.I don’t see any good reason to buy Tullow shares. Indeed, right now, I’d say Premier Oil shares are probably the better buy. I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!center_img Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Our 6 ‘Best Buys Now’ Shares Enter Your Email Address Simply click below to discover how you can take advantage of this. Roland Head | Tuesday, 6th October, 2020 | More on: HBR TLW last_img

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