Icahn buys lead stake in SandRidge, opposes Colorado purchase plan
Activist investor Carl Icahn has purchased a 13.5 percent stake in Oklahoma City-based SandRidge Energy Inc. and called the company’s plans to buy a Coloradobased oil company “nonsensical.”
In filings with federal regulators Wednesday, Icahn said he and his companies spent $82.2 million to buy 4.79 million SandRidge shares between Oct. 18 and Nov. 22.
Icahn said he began buying shares in the company in October because he believed the stock to be undervalued. After SandRidge announced plans to buy Bonanza Creek Energy, Icahn quickly upped his stake in the company so he could oppose the deal.
SandRidge announced Nov. 15 that it plans to buy Denver-based Bonanza Creek in a cash and stock deal worth $746 million. SandRidge said it would pay $398 million in cash and issue about 18.89 million shares of SandRidge stock to pay for Bonanza and its 67,000 contiguous net acres in the Colorado DJ Basin.
SandRidge spokesman David Kimmel said Friday the Bonanza Creek purchase will benefit shareholders.
“We believe our Bonanza Creek acquisition will drive strong risk-adjusted returns for SandRidge stockholders and be accretive to cash flow per share,” Kimmel said in a statement. “We look forward to communicating the merits of this transaction with our stockholders and to filing more details in our proxy.”
Icahn on Wednesday said he intends to “vote against the nonsensical Bonanza transaction.” Icahn noted that other large SandRidge shareholders — including Fir Tree Partners, Susquehanna Advisors and Cannell Capital — also are opposed to the deal.
Fir Tree on Wednesday made its own filing opposing the deal.
“We believe this proposed acquisition represents a complete about
face by management on its post-bankruptcy strategy and would be extremely value destructive to shareholder value,” Fir Tree managing directors Evan Lederman and David Proman said in the filing. “Fir Tree is opposed to the proposed transaction and intends to vote against this nonsensical and overpriced acquisition.”
Icahn on Wednesday cited Fir Tree’s letter and said he and his companies “could not be more in agreement with the views expressed in the statement — especially with the assertion that the transaction ‘reminds us of SandRidge’s prior history when this same management team acquired disparate assets and added leverage with reckless abandon.’”
Both SandRidge and Bonanza have sought bankruptcy reorganization over the past two years as oil prices tumbled and the industry experienced its deepest downturn in three decades. SandRidge emerged from bankruptcy in October 2016, shedding $3.7 billion in debt. Bonanza Creek emerged from Chapter 11 in April after dropping $866 million in debt.
SandRidge CEO James Bennett earlier this month said the proposed purchase would benefit SandRidge and its shareholders.
“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,” Bennett said in a statement Nov. 15.
“Likewise, SandRidge will benefit from the greatly increased scale and substantial cost and operational synergies as a result of the transaction. Lastly, the acquisition will be accretive to cash flow per share and will enhance our ability over time to increase cash flow generation of the business.”
The deal has been unanimously approved by both boards but still requires approval from shareholders of both companies.
Icahn said in Wednesday’s filing that his representatives have attempted to contact SandRidge CEO James Bennett and that they hope to meet with the SandRidge management team soon.
Activist history
Once known as a feared and hated corporate raider, Carl Icahn in recent years has developed a reputation as an activist investor who benefits shareholders and cleans up corporate management, although the results are not always in the best interest of the target company’s employees or community.
In the 1980s, Icahn moved his money from company to company, often leaving boards and CEOs alone only after receiving “greenmail” — hefty cash buyouts or other incentives.
Now, shareholders tend to benefit from the so-called “Icahn lift” that often occurs when stock prices climb after Icahn buys in.
SandRidge shares closed Friday at $18.86 a share, up $1.36, or 7.8 percent, Friday and up more than 13 percent from Tuesday’s closing price of $16.62.
SandRidge stock tumbled $2.43, or more than 13 percent, Nov. 15 when the company announced the Bonanza deal. With this week’s rally, the stock price has more than recovered from last week’s drop.
Icahn has a long history of involvement in Oklahoma City-based energy companies. 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.
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. 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. Icahn led a shareholder revolt that shook up the company’s board and ousted co-founder Aubrey McClendon.
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.
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.
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