Paulson & Co. funds, which hold about a 9.5% stake in Callon, said in a letter to the company's board that adding Carrizo's "inferior Eagle Ford assets will permanently reduce the attractiveness of Callon to potential acquirers."
Callon replied to the call from the hedge fund by saying it remains confident in the deal with Carrizo.
"We remain confident in the strategic and financial benefits of our combination with Carrizo, which will create a leading oil and gas company with scaled development operations focused on the Permian Basin in a transaction that is accretive on all per share metrics," Callon said in a statement.
Both Callon and Carrizo still believe that the deal will close in the fourth quarter, it said.
Callon offered Carrizo shareholders 2.05 shares for each Carrizo share held, or about $13.12 per Carrizo share based on Callon's closing share price on July 12, representing a 25% premium. Shares of both companies have fallen since then and the deal now values each Carrizo share at $9.07.
Paulson noted that paying a 25% premium for the acquisition is "unjustifiable" and said Callon will lose its standing as a Permian pure play by acquiring a company with holdings in the Eagle Ford shale region of South Texas.
"If the board is truly interested in its shareholders, given the magnitude of the difference between the current stock price of Callon and its takeover value, it should pursue a sale of Callon," the hedge fund said.
However, Callon's holdings in the Permian shale basin do not have a natural fit with bigger shale producers, said Andrew Dittmar, an M&A analyst at data provider Enverus.
"Callon doesn't have an obvious suitor there," he said.
The original $3.2 billion valuation, which would have Callon pay about $16,500 per acre in the Delaware Basin, is among the lower prices for such deals in the last few years, Dittmar said. Carrizo's holdings in the Eagle Ford are mature and could add to the combined company's cash flow without a lot of investment, he added.
Shares of Callon, which have dived 36.25% since the transaction was announced in July, closed up about 15.4% at $4.71 on Monday, while Carrizo shares closed up at about 11.8% to $8.94 on Monday.