How will the merger affect Sitio's earnings per share and overall valuation?

Impact on EPS

The merger swaps Sit Royalties’s shares for 0.4855 Class A shares of New Viper, a company with a much larger balance‑sheet and higher cash‑flow profile. Because the exchange ratio is below one‑for‑one, Sit’s existing shareholders will own a smaller proportion of the combined entity, which will dilute earnings per share in the near‑term. The dilution is amplified by the fact that Viper’s earnings are still in the early‑stage development of its upstream and mid‑stream assets, so the incremental net income contributed by Viper will be modest relative to the larger share count. Analysts should therefore expect a downward‑pressure on STR’s reported EPS until the synergies from the integrated royalty and energy‑production streams materialise.

Effect on Valuation

From a valuation standpoint, the deal adds a “growth‑premium” to Sit’s balance sheet: the combined company now commands a higher enterprise‑value (EV) to EBITDA multiple than Sit alone, because Viper’s upstream assets bring higher capital‑intensive cash‑flows and a broader asset base. The market will likely re‑price STR at a mid‑range EV/EBITDA (≈ 12‑14×) that reflects the blended risk profile—still lower than pure upstream peers (≈ 15‑18×) but above pure royalty‑only firms (≈ 8‑10×). The net effect is a valuation uplift for the combined entity, even as the EPS metric is temporarily compressed.

Trading Implications

• Short‑term: Anticipate a modest sell‑off on the day of the shareholder‑approval announcement as investors price‑in EPS dilution. Technicals may show a breach of the recent support zone around the 20‑day moving average, offering a buying‑opportunity for contrarian traders with a view to capture the upside from the valuation premium.
  
• Medium‑term: Once the merger closes (target Aug 19 2025) and integration synergies begin to flow—particularly the conversion of Viper’s upstream cash‑flows into royalty income—EPS should start to accumulate and the EV/EBITDA spread will compress toward the royalty‑peer range. A long‑position at current post‑announcement levels, with a stop just below the 20‑day MA, positions you to benefit from the expected re‑rating.
  

In short, the merger will initially depress Sit’s EPS but will lift the overall enterprise valuation; traders should focus on the short‑term price correction and then hold for the longer‑term upside as the combined business delivers higher, more stable cash‑flows.