Changes at Chesapeake:
Relief for Chesapeake Shareholders as Firm Seeks New Chairman
By MICHAEL J. DE LA MERCED
DealBook
New York Times
May 1, 2012, 9:59 am
The clouds that have gathered over Chesapeake Energy appeared to have scattered a bit on Tuesday, after the natural gas producer acceded to investor demands on a number of fronts.
Shares in Chesapeake soared more than 9 percent in premarket trading after two crucial bits of news: the company said it was ending a controversial well ownership program for its chief executive, Aubrey K. McClendon, 18 months ahead of schedule, and announced its intent to look for a new, independent chairman.
After the bell, Chesapeake shares were still up about 6 percent, at $19.53.
It seems clear that the company made its decision with an eye toward keeping shareholders happy. Tuesday’s announcement included this statement from the chief executive of Southeastern Asset Management, Chesapeake’s biggest shareholder:
“We are pleased that the Board has listened to our input and believe it has made the right decision by ending the FWPP early and seeking an independent Chairman. Aubrey was right to recognize that these actions are in the best interests of the Company and its shareholders. We support management’s continuing efforts to unlock and deliver the value embedded in Chesapeake’s assets.”
By late last week, Chesapeake announced that it would not renew Mr. McClendon’s unique compensation plan, known as the Founder Well Participation Program, after it took an enormous amount of criticism over the arrangement. (Our colleague Clifford Krauss has a good explainer.)
That was to be expected. Among the litany of woes Chesapeake has experienced since Reuters highlighted the controversial program:
- a sharp plunge in stock price
- a downgrade further into junk-bond territory of its credit rating
- an informal look by the Securities and Exchange Commission into the goings-on
How much consternation did the Founders Well Participation Program stir up? Here was one typical reaction, via Bloomberg News:
“Shame on the board,” said Fadel Gheit, an oil and gas analyst at Oppenheimer & Company in New York. “This is a very unusual, very unorthodox privilege and they should have gotten rid of it long ago.”
What analysts and investors were waiting for was when the company would take the next step of ending the program early — and whether Mr. McClendon would be cashed out, something he could have been entitled to — and whether it would seek a new chairman.
In its statement, Chesapeake said it was looking for “potential candidates with no previous substantive relationship with Chesapeake,” adding that it would consult with investors. Mr. McClendon has waived any payouts he would have been eligible to receive upon leaving the chairman position.
Even if shareholder anger about the compensation plan finally dissipates, there is still the small matter of Chesapeake’s continuing struggles with low prices for natural gas. We will hear more when Chesapeake reports its earnings after the closing bell on Tuesday.
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