Houston Exploration (THX) shares jumped 6% Monday to $57.97 after hedge fund JANA Partners LLC, which has been critical of THX management and recently demanded that the company open its books, offered to buy Houston Exploration for $62 per share, or about $1.8 billion. The company advised shareholders to take no action on the offer until its board has had time to review it.
JANA, a hedge fund with more than $5 billion in assets, currently owns about 12.3% of the independent production company’s outstanding shares. JANA requested that the parties begin immediate discussions on the purchase.
“We believe that there is still tremendous value in Houston Exploration, but that it will continue to be destroyed as long as the company remains in the hands of those who show far less interest in maximizing this value than they do in transferring it to the company’s management,” JANA Managing Partner Barry Rosenstein wrote in a letter Monday.
Citing ill-advised plans to use the proceeds from a $590 million sale of its offshore Gulf of Mexico assets to pay down debt and buy onshore exploration and production assets rather than to repurchase shares, Rosenstein last week charged THX with corporate waste and breach of its fiduciary duty to shareholders. Several months ago, JANA called on the company to use proceeds from the recent sale to maximize shareholder value through a $650 million share repurchase and the exploration of strategic alternatives, including a sale of the company.
Rosenstein also said that Houston Exploration’s reluctance to heed its sound investment advice is only the latest in a string of mismanagement incidents that include corporate waste, pursuing expensive acquisitions and inefficient debt repayment.
Rosenstein said the problems with the company run much deeper than this latest asset sale. He said, the board has overseen a “massive transfer of shareholder value to company executives,” particularly CEO William Hargett, over the last several years. He cited “massive compensation increases” for Hargett — more than a 500% between 2003 and 2005 — and other executives “in exchange for the paltry returns they have generated during a time of massive growth in the oil and gas exploration industry.”
The company responded to JANA’s demands last Thursday, agreeing to provide some of the documents requested but not all. While it agreed to provide minutes of board meetings in which executive compensation and employment agreements and bonuses were discussed, the company rejected requests for other documents on grounds that they were “irrelevant” or the demand was “overly broad, vague and unduly burdensome.”
Rosenstein said Monday that the company’s response falls well short of what is required. “It appears that the board may have in the past rebuffed private inquiries regarding a potential acquisition of the company at a significant premium, in which case the board has not only failed to generate maximum value for shareholders, it has stood in the way of shareholders potentially realizing this value through a sale, thus further perpetuating the cycle of value destruction at Houston Exploration.”
He said given the board’s “recent confirmation that it intends to proceed blindly ahead with demonstrably wasteful acquisitions despite the shareholder outcry this has generated, we believe action must be taken now to protect the value of our investment in the company.”
THX operates mainly in South Texas, the Arkoma Basin of Arkansas and Oklahoma, East Texas, the Uinta and DJ Basins in the Rocky Mountains, and the Gulf of Mexico. As of Dec. 31, 2005, it had net proved reserves of 861 Bcfe.
©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |