SandRidge directors adopt ‘poison pill’ merger strategy
SandRidge Energy Inc. directors said Monday they have adopted a shareholder rights plan to protect the right of existing shareholders to vote on the company’s proposed merger with Colorado-based Bonanza Creek Energy.
Commonly known as a poison pill, the shortterm shareholder rights plan was adopted less than a week after activist investor Carl Icahn announced he and his companies have acquired a 13.5 percent stake in the Oklahoma City-based oil and natural gas producer.
“Today’s actions are designed to protect the interests of all of our shareholders and preserve their ability to fully consider all information related to the proposed Bonanza Creek merger — including information which will be included in our proxy materials — and vote as they see fit,” SandRidge Chairman John Genova said in a statement Monday. “SandRidge looks forward to continuing to engage in constructive dialogue with shareholders regarding our plans for the business and the compelling strategic opportunity we see with Bonanza Creek.”
The plan is triggered if a person or group gains ownership of 10 percent or more of the company’s stock. Under terms of the deal, existing shareholders are grandfathered in, but would trigger the plan if they buy additional shares.
“The rights plan is designed to deter the acquisition of actual, de facto or negative control of the company by any person or group without appropriately compensating its shareholders for such control,” the company said in Monday’s statement. “The rights plan is not designed to prevent any action the board determines to be in the best interest of the company and its shareholders.”
SandRidge directors said the plan “was not adopted in response to any specific takeover bid,” but it was announced five days after
activist investor Icahn told federal regulators and SandRidge that he and his companies spent $82.2 million to buy 4.79 million SandRidge shares over the previous six weeks and that he would oppose the Bonanza purchase plan, which he called “nonsensical.”
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.
The purchase plan also is opposed by SandRidge investor Fir Tree Partners — which owns 8 percent of SandRidge stock — as
well as smaller SandRidge investors Susquehanna Advisors and Cannell Capital.
“While it is SandRidge’s policy not to comment on specific discussions with shareholders, the company has and will continue to welcome all constructive input furthering the goal of enhancing shareholder value and positioning SandRidge as a leading oil and natural gas exploration and production company,” SandRidge said in Monday’s statement.
SandRidge’s shareholders rights plan is effective immediately, but the directors said they plan to seek shareholder approval for the plan at the company’s 2018 annual meeting. If ratified, the plan will expire Nov. 26, 2018.
Tulsa money manager Jake Dollarhide said the plan is a logical move for a company that has an
unpleasant history with activist investors.
“Once bitten, twice shy,” said Dollarhide, president of Longbow Asset Management Co. “SandRidge is coming up to the plate for a second at bat, and they’re 0-1.”
A shareholder revolt led by hedge fund TPGAxon Capital in 2013 led SandRidge directors to dismiss founder Tom Ward as CEO and to place four TPG-Axon representatives on the SandRidge board.
SandRidge has strengthened its financial position over the past two years, shedding $3.7 billion in debt through bankruptcy reorganization. While the effort helped the company’s balance sheet, it weakened its ability to withstand a shareholder fight, Dollarhide said.
With about 8.2 percent of the company’s shares held by insiders and more than 87 percent
controlled by institutions, the company is more vulnerable to a takeover threat, he said.
“SandRidge is not in a very favorable position,” Dollarhide said. “The best poison pill is for insiders to own a majority of the stock. When most of it is outside, you have to do financial calisthenics to win your issues.”
Still, other local companies have successfully fended off activist investors. Tulsa-based Williams Cos. Inc. last year avoided selling to Dallas-based Energy Transfer Equity, an effort led by Icahn protege Keith Meister.
“There can be a happy ending here,” Dollarhide said. “There is a silver lining here for SandRidge management.”
SandRidge shares dipped 53 cents, or 2.8 percent, Monday to close at $18.37 on the New York Stock Exchange.