Chesapeake Energy Should Consider Sale: Top Shareholder
That's what the struggling oil and gas company's largest shareholder Southeastern Asset Management advocated to embattled CEO Aubrey McClendon in a Monday letter, as the company struggles with an over 40% 2012 stock drop in the past year.
In a filing with regulators earlier in May, Southeastern changed its status as an investor to "activist," signaling that the investor will look to play a more vocal role in Chesapeake Energy's strategy as it tries to overcome rock-bottom gas prices, a massively indebted balance sheet, and a string of revelations about potential conflicts arising from CEO McClendon's personal investments.
|Chesapeake shareholders meet their 2012 savior: Mason Hawkins, CEO of Southeastern Asset Management|
"We urge the board to be open to any offers to acquire the whole company," Southeastern Asset Management CEO O. Mason Hawkins wrote in a letter to Chesapeake on Monday. While Hawkins said that Chesapeake Energy shouldn't rush into an acquisition, especially as the value of the firm has fallen far below its net asset value per share, he added, "we don't want to use this large price-to-market gap as an excuse to refuse discussions with potential acquirers who would be willing to pay a price today that recognizes the longer term value of the company."
The letter by Southeastern Asset Management, in addition to its activist stance, signal that investors will ask for a lot more out of Chesapeake Energy even after it agreed to split the chairman and CEO roles and to early termination of a controversial oil & gas well ownership program for McClendon.
Still, Southeastern's letter also gives support to key parts of Chesapeake Energy's strategy, signaling that investor activism may not yield hostility as has happened in Carl Icahn-led campaigns and recent criticism by Yahoo!'s(YHOO) largest outside shareholder.
Hawkins was optimistic about Chesapeake's asset divestiture plans in Monday's letter. "We applaud current management efforts to do an Eagle Ford VPP, sell the Permian assets and do a Mississippi Lime JV at a time of good oil prices. We would also urge the company to accelerate monetizing any assets that are not core to the E&P business (such as midstream & oil services assets) and/or any more E&P assets which are not overly reliant on depressed spot natural gas prices."
Hawkins optimism can be countered, though, and hasn't been seen as a likely acquisition candidate as a whole or in its parts by Wall Street analysts covering Chesapeake.