Carl Icahn is quickly moving on to his next target. And the battle could be a doozy.
The activist late Friday afternoon raised his stake in Chesapeake Energy to 5.8 percent, asserting in a regulatory filing he believes the shares are undervalued. He also said he plans to continue discussions with the company’s management “to discuss the business and operations... and he maximization of shareholder value.”
Those words, of course, are code for planning some sort of hostile role.
The filing came the same week Icahn — who increased his stake in Chesapeake in both the second and third quarters as well--agreed to buy power producer Dynegy and shortly after losing a proxy battle with Lions Gate Entertainment.
However, Chesapeake is a shrewd choice for Icahn, who could actually play the role of altruistic outsider in this battle. It is not simply because shares of the largest natural gas provider closed Friday at $23.30, down about two-thirds from its all-time high of $66.78 hit in July 2009. Or the fact that Wall Street’s analysts are down on the stock--In November, at least two brokerage firms downgraded the shares — Argus and RBC Capital Markets.
More significantly, Icahn is choosing to do battle with Chesapeake chairman and CEO Aubrey K. McClendon, one of the most arrogant, audacious and vilified chief executive officers. McClendon has headed up Chesapeake since co-founding the company in 1989. This year Forbes ranked him the 937th Richest Person in the world. In 2004, he gave $250,000 to Swift Boat Veterans for Truth, a political group formed to discredit Democratic presidential candidate John Kerry’s service in Viet Nam.
McClendon, who has been celebrated as one of the largest wine collectors, owns 19 percent of the National Basketball Association’s Oklahoma Thunder, the former Seattle Supersonics which moved to Oklahoma City in 2008.
He is not afraid to mix things up. When he and the rest of his group of Oklahoma businesspeople bought the team, he angered their fans, and the league’s office, which fined him $250,000 for saying publicly his Oklahoma-based group had bought the team with the intention of moving it to Oklahoma. Of course, that is why they bought the team, and they followed through with the promise.
However, his wealth and his earnings have become a lightening rod for his critics, which will probably be seized upon by Icahn.
Forbes ranked him the third highest earning CEO in 2009 when he earned $114.3 million in salary, bonus and other goodies after earning $100 million in 2008, when Chesapeake’s stock fell about 60 percent while its earnings dropped by 50 percent.
McClendon's recent surge in compensation came on the heels of his humiliating, October 2008 admittance that he was forced to sell substantially all of his shares of Chesapeake common stock over three days in order to meet margin loan calls after he had borrowed money to buy additional shares, boosting his stake at one time to $1.9 billion.
In 2008, the company also bought McClendon's art collection for $12.1 million and even agreed to spend $4.6 million to sponsor McClendon’s basketball team.
Sit back, folks. Turn off those boring College Football bowl games. This one should be more exciting that the Eagles’ stunning victory over the Giants on Sunday.
