Why we're unloading our Pioneer stake before the deal with Exxon Mobil closes

Published Wed, Oct 11 20233:12 PM EDTUpdated Wed, Oct 11 20233:56 PM EDT

Here's our Club Mailbag email investingclubmailbag@cnbc.com — so you send your questions directly to Jim Cramer and his team of analysts. We can't offer personal investing advice. We will only consider more general questions about the investment process or stocks in the portfolio or related industries. Today's question: Why would we not stay in Pioneer [until a deal with Exxon closes] to receive $253 per share? Selling now leaves 6% on the table. — Thanks, Duke Great question. First, the official announcement on Wednesday from Exxon Mobil (XOM) that it is acquiring Pioneer Natural Resources (PXD) specifies this will be an all-stock deal. Why is that important? Because unlike an all-cash deal — in which you could wait for your shares to be bought for $253 apiece — an all-stock deal is all about the exchange rate. In this case, the deal is that Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing. So while the deal being is valued at $253 per share based on Exxon's closing price on Oct. 5 — before the The Wall Street Journal reported the potential tie up — the upside on PXD shares is no longer $253. Rather, it's 2.3234 times the current price of Exxon shares. Pioneer shares are now subject to the trading action in ExxonMobil. Below is the implied value of PXD share at various prices for XOM: This means that if the deal were to close tomorrow, the upside on PXD shares is about 2% from its current price — and we are not in the business of arbitrage. That's not enough to justify keeping the capital tied up. The opportunity cost is too high and given the recent market rally we've seen, we prefer to have the cash on hand. Jim Cramer and Jeff Marks talked about this dynamic during the Club's October Monthly Meeting on Wednesday. The question now is more about whether we want to take on a position in Exxon. At the moment, we're not interested. We would rather build up the position in our last energy holding Coterra (CTRA) when the price dips, as the Exxon-Pioneer deal could spark further consolidation in the energy complex. That could lead to a takeover offer for Coterra. We also have the recent rally in natural gas prices to lean on as a fundamental basis for further upside for Coterra. This will support free cash flow generation and therefore additional capital returns to shareholders. As a result, we intend to sell all of our PXD shares once our restrictions are lifted and are downgrading the stock to a 3 rating. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

An Exxon Mobil gas station in Las Vegas on July 25, 2023.

Bridgett Bennett | Bloomberg | Getty Images

Today's question: Why would we not stay in Pioneer [until a deal with Exxon closes] to receive $253 per share? Selling now leaves 6% on the table. — Thanks, Duke