What CEO’s Probable Removal Means for SandRidge
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Chalk up another one for the activist investor.
Hedge fund TPG-Axon Capital just struck a deal with SandRidge Energy (NYSE: SD), apparently giving the okay to show the oil and gas company’s CEO Tom Ward the door.
TPG-Axon, which owns 7.3% of SandRidge, launched a campaign back in 2012 with another hedge fund to oust Ward and the company’s entire Board of Directors amid governance lapses and strategic slip-ups. It took a while, but TPG succeeded.
Four directors nominated by TPG-Axon will immediately be added to SandRidge’s Board, which will hire an independent firm to review land deals by Ward and his family. Strategic gaffes aside, TPG claims Ward and the company’s Board permitted WCT Resources to acquire the rights to drill for oil and gas near SandRidge operations. The kicker, aside from the obvious, is that Oklahoma based WCT Resources is run by Trent Ward—yes SandRidge CEO Tom Ward’s son.
Reuters found through a review that Ward’s SandRidge contract gave him and his family a wide range in which to profit from personal oil and gas deals even though they could present possible conflicts of interest. Nice contract if you can get it.
The company’s board, now under TPG-Axon majority control, will decide by June 30 whether or not to end Ward’s rein. A betting person would most like wager on an ouster for Ward given TPG’s not so friendly feelings for the man.
Ward probably won’t be missed if and when he’s given the ax. As Morningstar wrote, “Given the stock price, the continued outspending and the related party transactions, there is not a lot to like about the name and it was driven by one man and his management team.”
Chesapeake’s CEO Aubrey McClendon was forced to resign and will step down April 1. McClendon, who founded Chesapeake with SandRidge's Tom Ward, also got his personal finances tangled up in the company he oversaw.
Prospects for the second largest producer of natural gas in the U.S. were stoked on news of McClendon’s exit. McClendon had an itchy hand and eagerly acquired a bevy of natural gas assets, many with his own interests in mind. Sounds a lot like Ward's situation. The result was a heavy bulk of debt.
Out from under McClendon’s reign, the company is reining in spending, selling under-performing and economically unsound assets. It’s a good start and offers potential for Chesapeake future.
Hess too recently caved to activist investors. The company just agreed to replace six board members and sell a variety of assets amid persistent prodding from investor Elliott Associates to break up the company’s energy empire.
By 2015, Hess will have exited its retail and marketing business. Company focus will be on exploration and production. Hess also announced a share buyback of up to $4 billion, and it boosted its dividend from 40 cents to a buck. Shares jumped on the news, and the upward momentum has continued.
As for SandRidge, speculation has been around for some time that the company is a takeover target. With Ward out of the way, that scenario seems likely.
The recent flurry of M&A activity, growing demand for cheap, clean natural gas, and SandRidge’s proved and potential reserves all make for a good argument that it could be taken out. Then there is SandRidge’s depressed share price.
Global natural gas demand is exploding. All things considered, SandRidge looks like a natural to do a deal.
Diane Alter has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!