Chesapeake’s Token Response: Aubrey No Longer Chairman
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If today’s announcement signifies anything it’s the Board of Chesapeake Energy (NYSE: CHK) remains firmly entrenched in a state of mediocrity. Investors however – several of which responded to the previous article detailing the recent irregularities by CEO Aubrey McClendon – are likely to be pleased.
In spite of what could turn out to be SEC violations at the worst – or questionable financial dealings at best – shareholders seem to be squarely in Aubrey’s corner. Why? They’ve made money over the years as Chesapeake has grown to become one of the largest pure natural gas exploration companies on the planet. That was certainly the feedback from existing stockholders after the article strongly suggested Aubrey should be shown the door.
Sure Chesapeake has grown primarily by Aubrey leveraging everything but the kitchen sink – but then so too have $8 billion Linn Energy (NASDAQ: LINE) and $6 billion Cimarex (NYSE: XEC) – that’s par for the gas industry course. But with a relatively soft natural gas market - at least in the immediate future - the debt has caused some issues. From an investment perspective the industry as a whole doesn't offer much in the way of growth, Cimarex in particular has seen several quarters of declining revenues and earnings. At least with Linn Energy, there's a 6-year track record of outstanding yields shareholders can enjoy - it now sits at an industry leading 7.19%.
Regardless of Aubrey’s alleged use of his Founder Well Participation Program as collateral for $1.1 billion in loans, many investors seem unfazed. Now – with the Board acting so “decisively” – you can almost hear shareholders breathing a sigh of relief thinking "finally all the negativity is behind us." So what’d the Board do? Pete Miller –Chesapeake’s lead Director – announced the separation of roles for Aubrey. He will no longer act as Chairman in addition to his CEO duties. According to Pete, the stripping of his Chairman title – and the early termination of the FWPP fiasco – apparently makes everything copasetic. Whew, that was a close one.
Not surprisingly Aubrey supported the move, stating "This action reflects our determination to uphold strong corporate governance standards and will also enable me to focus my full time and attention on execution of the company's strategy," Corporate governance? If that weren’t so incredibly transparent it’d be laughable.
So where does all this leave shareholders, at least for the time being? Laughing all the way to bank – for today anyway. With the stock up over 9% so far its clear analysts and investors are of one, collective mind – this latest move ought to just about cover it. All is now right with the Chesapeake Energy world, and it’s time to get back the 11% drop in share price YTD. Doesn’t change the need for Chesapeake to look at selling assets or even issuing new debt to pay current liabilities – but who cares? Aubrey’s taken his slap on the wrist and its time to forgive and forget.
No matter, investor’s glee and the slow return to normalcy for Chesapeake doesn’t change a thing. Aubrey got caught with his hand in the massive cookie jar and it shouldn’t be swept under the rug. But as happens all too often, shady deals are brushed aside by shareholders interested in one thing only – can you show me the money?
Removing Aubrey from the Chairman’s role was nothing more than a preemptive strike ahead of continuing SEC investigations and shareholder rights’ law firms. “See, we’re handling the situation with a firm hand.” Beautiful.
When it’s all said and done, do you really think Aubrey will have learned anything? Anything at all? Yeah - be more careful to cover his tracks next time.
timbrugger has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. If you have questions about this post or the Fool’s blog network, click here for information.