Struggling energy company Tellurian (TELL 7.71%) is reportedly seeking a buyer. Investors appear to believe a deal could be done at a premium to the company's recent price, sending Tellurian shares up 21% as of 10:30 a.m. ET Friday.
Could M&A save the day?
Tellurian is a company with tremendous promise but also a long history of falling short of its potential. The company was founded in 2016 to develop a liquefied natural gas (LNG) export facility. However, it has struggled to secure the partners and financing it needs to make its vision a reality.
Shares of Tellurium have lost about 95% of their value since 2019. In December, the company ousted co-founder Charif Souki and vowed to slash costs. It has also hired investment bank Lazard to help it explore "commercial opportunities," but according to Bloomberg, the bank will also advise on a potential sale of the company.
For all its scars, Tellurian still has value. The company's Driftwood LNG project in Louisiana might be behind schedule, but it has all the necessary government approvals. With U.S. officials reconsidering LNG exports due to climate change concerns, the regulatory approval could be of great value to a deep-pocketed buyer able to finance the project's completion.
Is Tellurian a buy on the sale rumors?
This is potentially good news for long-suffering investors but not a reason to buy into the stock at these elevated levels. While there is potential value in Driftwood and reason to believe there will be bidders if the company goes up for auction, it would be a surprise to see anyone overpay for the asset, considering the significant amount of investment that will be required.
It isn't even clear whether Tellurian is seeking to sell Driftwood, with the report saying that the company is also open to selling its portfolio of gas wells to raise capital. Given the questions still surrounding Tellurian, investors would be wise to either stand pat or use the stock surge as an exit rather than consider adding shares at this suddenly elevated level.
