* A deal could create company valued at nearly $1 bln
* SandRidge shareholders would own 60 pct of combined company
* Major investor Fir Tree supports Midstates' offer
* Proposal follows SandRidge's failed attempt to buy Bonanza Creek (Adds background, analyst comment, updates stock prices)
By John Benny
Feb 6 (Reuters) - Midstates Petroleum Co Inc offered to buy larger rival SandRidge Energy Inc in an all-stock deal, weeks after activist shareholder Carl Icahn scuppered SandRidge's plans to buy Bonanza Creek Energy Inc.
The proposal highlights the prolonged efforts by Fir Tree Partners — an activist shareholder which supports Midstates' offer — to replace SandRidge's leadership. Fir Tree, along with Icahn, had criticized SandRidge's management and Chief Executive James Bennett for what they called years of poor decisions.
Fir Tree is among the biggest shareholders in both Midstates and SandRidge. Icahn is SandRidge's largest shareholder.
While SandRidge shareholders will hold 60 percent of the combined company, according to the proposal, Midstates' CEO David Sambrooks will be in charge — a move that may pacify Icahn and Fir Tree.
"The role of overlapping large holders in both entities suggests this is an effort to put SandRidge's assets into Midstates' hands, which implies SandRidge's management and board would be unlikely to survive the merger," Mizuho analyst Timothy Rezvan said.
Midstates said SandRidge had not responded to its offer with a date for a meeting.
A deal will likely create an oil-and-gas producer valued at nearly $1 billion.
Both Midstates and SandRidge have large holdings in the Mississippian Lime shale formation that is spread across Northern Oklahoma and Southern Kansas.
The formation has seen production dip as oil producers moved on to more prolific shale plays including the Permian and the Bakken.
Midstates, however, said the combined company would have little debt and free cash flow (FCF) of up to $480 million over the next five years.
"The quality of the Oklahoma assets remains a concern ... We see asset quality as a deterrent to investors, regardless of FCF generation, but expect (Midstates) management to make their case in the days ahead," Rezvan said.
SandRidge's stock rose 3 percent on Tuesday morning amid volatile trading in the broader market. Shares in SandRidge, which filed for bankruptcy in 2016 and emerged out of it after a year, slipped 10.5 percent in 2017.
Midstates' shares, which shed 20 percent last year, rose 1.2 percent on Tuesday.
Midstates' proposal says SandRidge shareholders will receive 1.068 shares of Midstates for each share held.
Neither SandRidge nor Icahn responded to requests for comment. Avenue Capital, another Midstates shareholder that backs its proposal, was also unavailable for comment. Fir Tree declined to comment.
Moelis & Co is Midstates' financial adviser, while Paul, Weiss, Rifkind, Wharton & Garrison LLP is providing legal counsel.
Reporting by John Benny in Bengaluru; Editing by Sai Sachin Ravikumar and Sayantani Ghosh