Top Holder: Chesapeake Should Be Open to Buyout

Monday, 07 May 2012 03:33 PM

 

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Chesapeake Energy Corp's largest shareholder urged the natural gas company to remain open to acquisition offers despite the weakness of its share price.

In a letter to Chief Executive Aubrey McClendon, Southeastern Asset Management, holder of a 13.6 percent stake in Chesapeake, acknowledged the "dangers of opening such conversations" as the company struggles with concerns about McClendon's business dealings, on top of the low natural gas prices.

"However, we also don't want to use this large price-to-value gap as an excuse to refuse discussions with any potential acquirers who would be willing to pay a price today that recognizes the longer term value of the company," said the letter, filed with U.S. securities regulators on Monday and signed by Southeastern CEO Mason Hawkins.

While experts caution that pulling off a sale of Chesapeake would be extremely complicated, Southeastern said last week that it planned to take a more active role in the affairs of the company.

Discontent among Chesapeake investors has grown following a series of revelations about the company, including a Reuters report saying that McClendon has pledged his interests in Chesapeake wells as collateral for more than $1.1 billion of personal loans.

The Southeastern letter urged the company to accelerate its sales of assets not core to its exploration and production business, and expressed concern about the amount of time Chesapeake's management has spent on "unproductive communications" at conferences and in media interviews.

"We appreciated receiving the letter and look forward to further discussions with our largest shareholder in the days and weeks to come," Chesapeake spokesman Michael Kehs said.

Shares of Chesapeake were down 1.3 percent, at $17.16, in late afternoon trading Monday. The stock hit its lowest level in three years last week at $16.70, or more than 75 percent below its 2008 peak.

"The problem you are going to have with Chesapeake is that it has become a very complex company because of the financings they've had to do," said Neal Dingmann at Suntrust Robinson Humphrey, who puts the company's net asset value at $30 per share.

"Because of the complexity of the company, somebody is going to really have to want those assets."

Dingmann's view was echoed by an investment banker who spoke last week on the condition of anonymity. "To the extent to which they have clean assets, those are the ones that they've basically marked for sale, because they can and because they have to," the banker said. "I think it's tough."

© 2014 Thomson/Reuters. All rights reserved.

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