(Adds analyst comment, background)
Nov 18 (Reuters) - Callon Petroleum Co shareholder Paulson & Co said on Monday it would now not oppose the U.S. shale producer's purchase of smaller rival Carrizo Oil & Gas Inc , after the company last week sharply cut its offer.
Billionaire investor John Paulson's hedge fund, which had earlier said the deal was too expensive, also reduced its stake in Callon but did not give any details on its latest holding. Paulson held 9.5% in the company as of Nov. 6.
The new terms value Carrizo at about $723 million, compared with the original offer of $1.2 billion in July. It provides Carrizo shareholders 1.75 Callon shares for each share held, down about 15% from the first bid.
Callon will pay up to $10 million of Carrizo's expenses if Callon shareholders reject the deal.
Paulson had called out the earlier 25% premium as too steep and that Callon would lose its position as a Permian pure play by buying a company with holdings in the Eagle Ford shale region of South Texas.
The hedge fund maintained its position on Monday but said it respected other shareholders' views.
"The combined structure represents the most logical go-forward course of action for each company, given current Eagle Ford free cash flow and future potential to monetize the asset, as well as the increased size in the Delaware allowing for a more meaningful shift to project development," SunTrust Robinson Humphrey analyst wrote in a note.
Shares of both Carrizo and Callon fell more than 4% in morning trade, pressured by a drop in crude oil prices. They had gained premarket following Paulson's support for the deal.
Proxy advisory firms Glass Lewis & Co and Institutional Shareholder Services had urged a "no" vote to the original Callon-Carrizo merger.
Oil and gas companies looking to expand through acquisitions against the backdrop of volatile crude prices have faced fierce opposition from investors seeking more returns.
In October, shares of U.S. shale producer Parsley Energy Inc fell 11% after it agreed to buy smaller peer Jagged Peak Energy Inc in an all-stock deal valued at $1.62 billion.
(Reporting by Arundhati Sarkar in Bengaluru; Editing by Anil D'Silva and Sriraj Kalluvila)