by Adam Wilmoth Published: December 10, 2017 5:00 AM CDT Updated: December 10, 2017 5:00 AM CDT
Activist investor Carl C. Icahn again has focused his attention on an Oklahoma City-based oil and natural gas company.
One of the country's best known corporate raiders, Icahn for more than three decades has targeted companies he believes to be undervalued or poorly managed. In recent interactions, Oklahoma City-based oil and natural gas companies have had mixed results from Icahn's efforts.
Icahn last month revealed he and his companies spent $82.2 million in October and November to buy 4.9 million SandRidge Energy Inc. shares, giving him control of a 13.5 percent stake in the Oklahoma City company and making himself its largest shareholder.
Icahn said he initially bought the stock because he believed SandRidge shares were undervalued, but he rapidly increased his investment after the company's announcement that it plans to buy Colorado-based Bonanza Creek Energy in a cash and stock deal worth $746 million.
Icahn last week upped the attack on SandRidge directors, questioning CEO James Bennett's leadership and salary.
SandRidge executives have said the Bonanza Creek purchase would benefit the company and its shareholders.
"Our independent board thoroughly evaluated and unanimously supports the Bonanza Creek transaction," SandRidge said in the statement last week. "We look forward to filing our proxy materials before year end, which will give shareholders the ability to fully review the merits of the transaction."
In a letter to SandRidge directors the next day, Icahn pointed out the company recently shed $3.8 billion in debt and canceled all shareholder equity through bankruptcy reorganization.
"Management fared considerably better," Icahn wrote in the Nov. 30 letter. Bennett "was paid very large amounts for his part in the disaster, and his predecessor received even more compensation. Indeed, historically, SandRidge's most senior management recovered princely sums in compensation while the stockholders ended up with nothing."
In the Dec. 1 letter, Icahn demanded access to all documents related to SandRidge senior management compensation, the $90 million severance payment awarded to ousted former CEO Tom Ward, the planned Bonanza Creek purchase and the shareholder rights plan, or poison pill, SandRidge directors adopted last month to limit the influence of Icahn and other large investors.
"The Icahn parties regard both the Bonanza acquisition and the plan to constitute mismanagement at a minimum and likely breaches of fiduciary duty, while Mr. Bennett's compensation to date appears to be inexplicable," Icahn wrote in the letter.
With many of the companies in which Icahn has invested, he has challenged management and directors by nominating his own directors and staging a proxy fight for shareholder votes. With SandRidge, Icahn so far has made no such proposal, but he said in the most recent letter that depending on what he discovers in the demanded documents, he might sue the company, share the information with other stockholders or nominate his own directors.
Icahn repeatedly has challenged SandRidge's spending and financial strategies. "SandRidge is a company with a history of doing a decent job in finding oil and gas and a much poorer job in creating a sustainable financial structure," he said in the Dec. 1 letter. "As a result, SandRidge has repeatedly overleveraged itself while overpaying for assets, and the results have been disastrous for its stockholders."
SandRidge executives have promoted the planned Bonanza Creek purchase as a way to improve the company's production mix and speed up its drilling program in Colorado.
The deal would give the Oklahoma City-based company 67,000 contiguous net acres in the Colorado DJ Basin near SandRidge's existing acreage in Colorado's Niobrara Shale.
"This acquisition greatly enhances our existing portfolio by adding a deep inventory of drill-ready locations in the DJ Basin of Colorado and is highly complementary to our existing North Park, Northwest STACK and Mississippian assets," SandRidge CEO James Bennett said in a Nov. 15 statement announcing the plan.
"The geological and operational characteristics of Bonanza's Niobrara and Codell locations are analogous to our existing Colorado North Park assets, and we expect to benefit from the expertise of their teams. Overall, we believe this will drive strong risk-adjusted returns in both areas."
The additional acreage would boost SandRidge's Niobrara production to 25 percent from 4 percent today and decrease the Mississippi Lime's share of the production mix to 60 percent, down from 80 percent today.
Directors of both SandRidge and Bonanza Creek unanimously approved the deal, but it still requires approval from shareholders of both companies. The sale is scheduled to close in the first quarter of 2018.
Icahn's Oklahoma City history
Icahn has a long history of involvement in Oklahoma City-based energy companies. Some companies have fared better than others.
In February 2005, Icahn announced his intention to buy up to $1 billion of shares in Kerr-McGee Corp. Seventeen months later, Kerr-McGee management agreed to sell the company to Houston-based Anadarko Petroleum Corp. for $18 billion.
Before the sale, Icahn threatened a proxy fight with executives and directors, nominating himself and an associate to the Kerr-McGee board. Icahn withdrew his effort after Kerr-McGee agreed to buy back $4 billion in stock, spin off its chemicals division and sell $2 billion in natural gas production assets.
Icahn twice has invested in Oklahoma City-based Chesapeake Energy Corp.
In December 2010, Icahn reported a 5.8 percent stake in the Oklahoma City energy company and challenged its debt level. Chesapeake soon promised to sell assets and reduce debt.
The stock price peaked at $35.61 in February 2011. A few weeks later, Icahn sold at least enough shares to drop below a 5 percent stake, pocketing about $500 million in the process.
Two years later Icahn upped his stake in the company again after Chesapeake shares tumbled 56 percent. That time, Icahn was less patient. He nominated his own slate of directors and led a shareholder revolt that shook up the company's board and ousted co-founder Aubrey McClendon as CEO.
Icahn in September 2016 said he cut his position in Chesapeake for tax-planning purposes and gave CEO Doug Lawler credit for navigating the company's moves to cut debt and costs amid a prolonged oil and natural gas price slump.
In May 2012, Icahn won a takeover fight with another company with Oklahoma ties. He bought a majority interest in Sugar Land, Texas-based CVR Energy Inc., which owns the oil refinery in Wynnewood. After the CVR directors rebuffed his takeover effort, Icahn offered to pay $30 per share to buy the stock directly from shareholders. He paid $2.6 billion for a 69 percent stake in the company.
While Icahn is new to SandRidge, the Oklahoma City company has experience with activist investors. A shareholder revolt led by hedge fund TPG-Axon Capital in 2013 led the company to dismiss founder Tom Ward as CEO and to place four TPG-Axon representatives on the SandRidge board.
Icahn also has invested in energy companies outside of Oklahoma and in firms from many different sectors.
He owns about 14 percent of natural gas transportation and export giant Cheniere Energy along with stakes in Herbalife, Xerox Corp. Navistar International, Hertz Global, PayPal and others.
Icahn also has ties to President Donald Trump. The president last year named Icahn a special adviser on regulation and tasked him with helping the administration update and reduce regulatory challenges.
Icahn in May stepped down from the position following complaints of conflicts of interest. Icahn said at the time that he resigned to avoid "partisan bickering."
The U.S. Justice Department last month subpoenaed Icahn over his efforts to shake up the country's biofuels program earlier this year while he was an unpaid adviser to President Trump. Icahn's CVR Energy Inc. is a competitor with the biofuels industry.
“We are cooperating with the request and are providing information in response to the subpoena.
The U.S. Attorney's Office has not made any claims or allegations against us or Mr. Icahn,” the company said in the filing.
The conflict was over an Icahn proposal to change the Renewable Fuel Standard, moving the responsibility for blending fuels from the refiners to the supply terminals. The change could have lowered the price for biofuel blending credits, leading to profits for CVR.