Largest Shareholder to Chesapeake: Consider Takeover Offers

• Joe Wertz
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  Joe Wertz was a reporter and managing editor for StateImpact Oklahoma from 2011-2019. He reported on energy and environment issues for national NPR audiences and other national outlets. He previously worked as a managing editor, assistant editor and staff reporter at several major Oklahoma newspapers and studied journalism at the University of Central Oklahoma.

In a letter that criticized management and the board, Chesapeake Energy’s largest shareholder on Monday urged the company to be open to buyout offers.

Southeastern Asset Management, which owns more than 13 percent of the company’s outstanding stock, highlighted its worries:

We urge the company to take action in three areas: debt targets, management focus, and strategic options.

Southeastern also dug into CEO Aubrey McClendon and Chesapeake management for wasting time and focus on “unproductive communications.”

Sell-side conferences, media interviews with no hope of a fair hearing, and meetings all over the U.S. with groups who may have only a casual interest but don’t mind hearing the “story” use valuable amounts of top management’s time with no apparent benefit and plenty of misinterpretation detriment.

Chesapeake’s current market price is “far below” it’s net asset value, so Southeastern wouldn’t support a “lowball bid,” officials wrote. (Click here for the full text of the letter.)

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.

McClendon and the company have been under fire after a report that the CEO had borrowed up to $1.1 billion in personal loans using his stake in the company’s wells as collateral. McClendon had been afforded a controversial CEO perk, which allowed him a stake in every well the company drilled.

And, last week, another report surfaced that McClendon and SandRidge Energy CEO Tom Ward ran a $200 million hedge fund that traded commodities Chesapeake produced.