Update: it appears Carl Icahn agrees with our assessment: CARL ICAHN SAYS CHESAPEAKE'S COLLECTION OF ASSETS "ARE THE BEST PORTFOLIO OF ENERGY ASSETS IN THE COUNTRY"
Back in May 2012, when Reuters' all out aggressive campaign against Chesapeake Energy was in full swing and the stock was trading around $14 per share but before Icahn and Loeb were publicly involved, we predicted that contrary to the endless balance sheet bashing there was, in fact, much upside to CHK. We said that the argument rests on one simple fact: its asset base, which ignoring the firm's liabilities - as in a ZIRP environment, even CHK could easily refi its debt at very agreeable terms - and the CEO's lousy industry reputation implied a far higher stock price for the company. To wit: "the company has lots of good assets, as well as quite a few legacy liabilities, combined with an industry environment that is as bad as it has ever been. And sure enough, in betting that the environment might actually improve for a change, there are quite a few big firms which may be happy to onboard the assets and the liabilities, knowing they wouldn't impair the right side of their balance sheet, while acquiring some good real estate and substantial reserves on the left, at a valuation that is the cheapest in the industry. Because in finance, once central planning is (finally) stripped away, valuation is all that matters."
And even before that, a far more immediate catalyst we predicted would be a simple succession event "which eventually will culminate with the long overdue termination of the company's head." Or, said simply, the sacking or resignation of the disgraced CEO would unlock material upside value. Moments ago just this happened, as the company just announced a "succession plan" the direct result of which is that the CEO is out as of April 1. The upside value in question: just about 10% as the stock is currently soaring in the after hours session.
From the press release:
Aubrey K. McClendon to Retire from the Company on April 1, 2013
Board Announces that its Extensive Review of Alleged Conflicts of Interest and Other Matters Involving McClendon Has to Date Found No Improper Conduct, Final Report to be Completed in Mid-February
Chesapeake Energy Corporation (CHK) today announced that its Co-founder, Chief Executive Officer and President, Aubrey K. McClendon, has agreed to retire from the company on April 1, 2013 and will continue to serve as Chief Executive Officer until his successor is appointed. Mr. McClendon, 53, has served as Chesapeake’s Chief Executive Officer since the inception of the company in 1989 and served as Chairman of the Board from its founding until 2012.
Archie W. Dunham, Chairman of the Board, stated: “Over the past 24 years, Aubrey McClendon has created one of the most valuable and innovative companies in the energy industry. Under Aubrey’s strong leadership, Chesapeake has built an unmatched portfolio of natural gas and oil assets in creating one of the world’s leading energy companies. He has been a pioneer in the development of unconventional resources, and he has also been a leader in the effort to make the United States energy independent. However, as the company moves towards more fully developing the value of its outstanding assets, Chesapeake is at an important transition in its history and Aubrey and the Board of Directors have agreed that the time has come for the company to select a new leader. The Board will be working collaboratively with Aubrey to make a smooth transition to Chesapeake’s next Chief Executive Officer.”
Mr. Dunham continued: “Going forward, the company will strive to continue as a low cost producer of oil and gas while further enhancing and strengthening its balance sheet. Capital allocation and operating decisions will be made with the goal of prudently growing the company’s intrinsic value per share for the long-term benefit of its shareholders. By forging ahead with a new Chief Executive Officer, the company’s strong management team and talented employees will continue to develop the industry’s best assets to create substantial value for shareholders and themselves in the years ahead.”
Aubrey K. McClendon, Chesapeake’s Chief Executive Officer, said: “Over the past 24 years, I have had the privilege of developing Chesapeake into one of the world’s premier energy companies. It has been an honor to work with my outstanding management team and the company’s 12,000 very talented and dedicated employees. I am extremely proud of what we have built over the last quarter of a century, and I am confident that Chesapeake is in a great position to continue to grow and achieve great success in the future as it realizes the full value of its outstanding assets. While I have certain philosophical differences with the new Board, I look forward to working collaboratively with the company and the Board to provide a smooth transition to new leadership for the company.”
The Board expects to release the results of its previously announced review of the financing arrangements, and other matters, between Mr. McClendon (and the entities through which he participates in the Founder Well Participation Program) and any third party that has had or may have a relationship with the company in any capacity, in its earnings announcement scheduled for release before market open on February 21, 2013. The Board’s extensive review to date has not revealed improper conduct by Mr. McClendon. The Board and Mr. McClendon’s decision to commence a search for a new leader is not related to the Board’s pending review of his financing arrangements and other matters.
The Board has retained Heidrick & Struggles to assist the Board in its search of Mr. McClendon’s successor. The Board also intends to consult with Mr. McClendon in connection with this search. The search process will include a full review of internal and external candidates.
Sure enough, the stock is now soaring after hours, and well above $20.
And with the resignation of the CEO, the next potential catalyst comes into play: full blown M&A by one of the majors. Because when it comes to CHK, it is all about unlocking the asset value.