The rumor mill continues to churn with regard to Carl Icahn’s investment in Chesapeake Energy. The latest rumor, being circulated by the venerable Bloomberg News, says that Icahn has taken a 4 percent stake in the company. Is that good? Is it bad? Meaningful or not? Let’s give you the “news” (or rather rumor) first, and then some perspective…
First the news:
Billionaire investor Carl Icahn, known for pushing for change at the companies in which he invests, has become one of Chesapeake Energy Corp.’s largest shareholders, said a person with knowledge of the matter.
Icahn’s stake in the company may amount to more than 4 percent, said the person, who declined to be identified because the holding hasn’t officially been disclosed. That would make him at least the fifth-largest investor in the second-biggest U.S. natural-gas producer, with a stake valued at more than $400 million based on Chesapeake’s closing price yesterday.
The presence of Icahn, 76, may add pressure on the board, which is already in the midst of a search to replace Chief Executive Officer Aubrey McClendon as chairman. The shares have lost about a third of their value this year amid a slump in gas prices and revelations about McClendon’s personal borrowings.
Chesapeake climbed 3.3 percent to $15.58 by 4:05 p.m. New York time after earlier rising as much as 6 percent.*
So the previous rumor that Icahn is investing (see this MDN story) looks to be true, and his stake is likely more than 4 percent. We’ll adopt that as our operating assumption. Does that mean corporate raider Carl (yesteryear’s corporate raiders have been euphemistically renamed activist investors today), can start to shake things up? Maybe even force Chesapeake to sell? For new board members? In a word, no.
Less than two years ago Carl had a 5.8 percent stake in Chesapeake that he flipped for a tidy $500 million profit:
Icahn, whose fortune Forbes magazine estimated at $14 billion as of March, has profited from Chesapeake in the past. He disclosed a 5.8 percent stake in Chesapeake in December 2010. Two months later, Chesapeake announced plans to sell assets and reduce debt, a move Icahn supported. He later sold Chesapeake shares.
"He made, I think, over $500 million and he called me to thank me when it was all over," McClendon said on a conference call May 14 when asked whether Icahn would again invest in the company. "I have a good relationship with Carl."*
But here’s the kicker. Take a look at all of the larger investors in Chesapeake. Carl’s new stake doesn’t come close to being dominant. He just knows how to grab headlines.
Here’s the list of large investors in Chesapeake with their relative percent stakes:
- Southeastern Asset Management Inc. – 13.2%
- Wellington Management Co. – 8%
- State Street Corp. – 4.1%*
There’s also a rumor circulating that BlackRock has increased its stake in recent days and now holds about 4 percent of Chesapeake’s outstanding stock.
What if all of them, Southeaster, Wellington, State Street, BlackRock and Carl Icahn voted together? That would equal at least 33.3 percent of the outstanding stock—one third or more. That could spell trouble for the Chesapeake board.
*San Francisco Chronicle/Bloomberg (May 24, 2012) – Icahn May Hold More Than 4% of Chesapeake Energy Shares
- CNBC (May 24, 2012) – Icahn, BlackRock Bullish on Chesapeake; Shares Rise
- The Street (May 25, 2012) – Carl Icahn Rumors Aren’t a Reason to Buy Chesapeake Energy