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Chesapeake Yields To Icahn, Adds 4 New Independent Directors, McClendon Steps Down As Chairman

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The first step toward the terminal McClendon ouster is here, because as a reminder, broken management teams are fixable, as we explained last week. Not surprisingly, stock is up 5% in the premarket. Next steps: a big balance sheet suitor?

Chesapeake Energy Corporation Agrees with Two Largest Shareholders on Plan to Reconstitute Board of Directors

Company to Add Four New Independent Directors; Four Existing Directors to Resign, a Fifth to Retire; Selection of New Independent Non-Executive Chairman Nearing Completion; Aubrey K. McClendon to Remain Chief Executive Officer and a Director

Majority Voting Standard Would Be Applied to Results of 2012 Annual Meeting; Board to Support Annual Election of All Directors

Chesapeake Energy Corporation (CHK) today announced that following extensive discussions with its two largest shareholders, Southeastern Asset Management and Carl C. Icahn and his affiliated entities, who own, respectively, approximately 13.6% and 7.6% of the Company’s common stock, Chesapeake has agreed to a plan to reconstitute its Board of Directors by adding four new independent directors to replace four existing independent directors who will resign from the Board upon the appointment of the new directors. Three of the new independent directors will be proposed by Southeastern and the fourth independent director will be Mr. Icahn or a person designated by Mr. Icahn, with Mr. Icahn making that determination prior to the reconstitution of the Board.

In addition, as previously announced, a fifth existing independent director is retiring at the 2012 Annual Meeting of Shareholders and will be replaced subsequently by a new independent Non-Executive Chairman through a selection process that is nearing completion. The new independent Non-Executive Chairman, who will have no previous substantive relationship with Chesapeake, will be confirmed by the reconstituted Board and will be acceptable to Southeastern and Mr. Icahn. Aubrey K. McClendon will relinquish the position of Chairman when the new Chairman is appointed and will continue as Chief Executive Officer and a director. Chesapeake will announce the new Board composition, including the independent Non-Executive Chairman, on or prior to June 22, 2012. The size of the Board will remain at nine directors.

In connection with Chesapeake’s 2012 Annual Meeting of Shareholders scheduled to be held on June 8, 2012, the Board of Directors has determined that if the amendment to Chesapeake’s bylaws to implement majority voting in director elections is approved by Chesapeake shareholders, it will be immediately implemented and applied to the results of the 2012 Annual Meeting. The Board will also seek relief from the Oklahoma statute mandating classified boards of directors for certain Oklahoma incorporated public companies so that shareholders will have the opportunity to elect the entire board of directors at the 2013 Annual Meeting of Shareholders.

Merrill A. (“Pete”) Miller, Jr., Chesapeake’s Lead Independent Director and President and Chief Executive Officer of National Oilwell Varco, said, “We are pleased to announce these important actions taken by the Board in consultation with our two largest shareholders to further enhance Chesapeake’s corporate governance for the benefit of all shareholders. We greatly appreciate the substantial contributions of all of our directors, but recognize our shareholders’ desire for change. Following implementation of these initiatives, the Chesapeake Board will have been substantially reconstituted with five new independent directors, including a new independent chairman, in addition to Lou Simpson who joined the Board last year.”

Aubrey K. McClendon, Chesapeake’s Chief Executive Officer, said, “Today’s announcement is the culmination of a continuing effort by Chesapeake’s Board to address shareholder concerns and better position the Company for the future. I am fully supportive of these measures and remain focused on executing Chesapeake’s strategy. I have great respect for the talent, commitment and dedication of our current Board members, each of whom has played a key role in helping build our successful company. At the same time, I look forward to working with our new directors to continue creating substantial shareholder value from the extraordinary set of assets Chesapeake has acquired and developed in recent years.”

O. Mason Hawkins, Chairman and Chief Executive Officer of Southeastern Asset Management, the Company’s largest shareholder, said, “We are pleased that Chesapeake is being responsive to issues raised by us and many of the Company’s other shareholders. These steps to reconstitute the Board will enhance oversight and provide greater accountability.”

Carl C. Icahn, Chesapeake’s second largest shareholder, said, “We appreciate the Board’s willingness to listen to shareholders and to respond appropriately. Under Aubrey’s leadership, Chesapeake has assembled great assets and I am confident I can help the Company create significant shareholder value from these assets. We enjoyed a very good relationship when I acquired almost 6% of the Company’s stock in late 2010 and I look forward to a similarly constructive relationship now.”

 

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Mon, 06/04/2012 - 08:48 | 2491251 GetZeeGold
GetZeeGold's picture

 

 

Chesapeake Yields To Icahn, Adds 4 New Independent Directors, McClendon Steps Down As Chairman

 

So they totally fixed it......freakin awesome!

Mon, 06/04/2012 - 08:54 | 2491265 Pladizow
Pladizow's picture

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Mon, 06/04/2012 - 09:39 | 2491415 malikai
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Mon, 06/04/2012 - 13:08 | 2492419 MrPalladium
MrPalladium's picture

In my view there was absolutely nothing to fix that the incipient rise in natural gas prices won't solve.

First, the method of compensating McClendon with fractional interests in wells has been public knowledge for some time. Further, fractional well ownership in NG wells - purchased with McClendon's own (sometimes borrowed) money unquestionably aligns his interests with those of the shareholders much better than the typical option package (heads, the CEO wins, tails, the CEO loses nothing!) and it provides the CEO with the opportunity for long term capital gains at 15% tax rates as opposed to ordinary income, and avoids burdening the company with the dilutive effect of option exercise.

Admittedly, McClendon's debt financed asset acquisition program was a very aggressive gamble. But he has built a superb acreage portfolio and unlike the TBTF banks, his own personal fortunes were tied to those of the company. If the shareholders lost money on his leveraged bets on their behalf, he lost money also.

The whole negative PR campaign against McClendon has the look and feel of an organized asset grab. Nobody seems to be noticing that this asset grab is going on just as natural gas has risen over 40% from its lows, has now retraced 61.8% of that rise and is rising thus far today. Natural gas production begun its decline due to falling rig counts over the past year, and the decline will accelerate over the next 12 months. In addition, net additions to storage (flows not stocks!) have been way below last year's levels and way below the 5 year averages, all due to higher demand.

The outlook for NG is wildly positive and as soon as NG forms a higher low on the daily chart and penetrates its 10ema to the upside I will be all in!

I have a substantial position in the 5% preferred (CHKDG now yielding 7.3%) but nothing yet in the options or the common.

Mon, 06/04/2012 - 08:56 | 2491256 midgetrannyporn
midgetrannyporn's picture

CHK hit a gusher the other day. Aubrey had the right vision but effed up so bad in many other areas that he is unfit to lead.

http://www.bloomberg.com/news/2012-06-01/chesapeake-makes-significant-di...

Mon, 06/04/2012 - 09:39 | 2491420 malikai
malikai's picture

10,000 ft down for 5400bbl/d in shale sounds like a pretty expensive well to me.

Mon, 06/04/2012 - 13:02 | 2492434 MrPalladium
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Get a clue, Icahn says he is still leading.

Mon, 06/04/2012 - 09:02 | 2491287 gwar5
gwar5's picture

I think NG represents a great value right now. We can run our cars on NG with a $400 conversion, and then flip a switch to go back and forth between NG and gasoline like a Brazilian taxi. The US should be an energy exporter.

Mon, 06/04/2012 - 09:16 | 2491327 fnordfnordfnord
fnordfnordfnord's picture

There are relatively few CNG and LNG filling stations. (in the US)

Home filling stations are expensive.

Range, can't drive between most cities. (for lack of filling stations)

The cost to transmit and keep it compressed or liquefied makes it an economic loser in locales which are far from the source.

Personally, I still reckon it has plenty of profitable use cases. Now, if only Aubrey McClendon hadn't gone and leased up the whole damned country and crashed prices. Says a lot for his education.

Mon, 06/04/2012 - 12:56 | 2492412 Matt
Matt's picture

Sounds like an entrepreneurial opportunity. Be the first kid on the block to buy a filling station for your home, then sell conversion kits and charge a couple bucks for people to fill.

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