Plains Exploration & Production Company (NYSE:PXP) may face some opposition to its pending acquisition of Pogo Producing Company (NYSE:PPP) after Fir Tree Partners disclosed a 9 percent stake and argued against the merger in a Schedule 13D filing with the SEC.

"Our decision is based upon detailed financial analysis which suggests that a termination of the transaction could result in PXP’s share price appreciating by 70% or more over the ensuing year," said the activist hedge fund in a letter to the company's board.

"Large scale share repurchases are a much more efficient use of shareholder capital given the extreme decline in PXP’s share price that was sparked by the announcement of the PPP deal and the negative natural gas price environment which makes PPP a less attractive/less valuable asset."

The initial deal announced in July seemed like a great idea to most shareholders as it would have provided accreditive cash flows to the PXP shares in the near term and diversify its reserves. However, since this announcement the macro environment and industry fundamentals have changed materially.

Moreover, PXP has lost about $1 billion in shareholder value as a result of the announcement. A share repurchase - on the other hand - would have allowed the company to repurchase 30 percent of the company while maintaining a debt/EBITDA ratio of 2.0x to 2.5x.

"We believe PXP will generate over ~$1 billion in after-tax proceeds over the next twelve months from the opportunistic sale of its non-core assets. Accordingly, the company could use the proceeds from these divestitures to repurchase 20-25 million shares," said Fir Tree Partners.

"Assuming the company was valued at comparable company levels, PXP shares would be worth $70-75, representing 70-90% upside from current share levels. We believe upside remains to this valuation if the company successfully completes the formation of an upstream master limited partnership."

What happens with the proposed acquisition remains to be seen, but this stock is definitely one worth watching!

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