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UPDATE 3-Chesapeake should consider sale-top investor
* Sell more assets or the company -Southeastern CEO
* Analyst, bankers say a sale would be tough
* Shares of company end down 1.5 percent
By Anna Driver and Michael Erman
May 7 (Reuters) - Chesapeake Energy Corp's largest shareholder urged the natural gas company to remain open to acquisition, despite the weakness of its share price
Chesapeake and Chief Executive Aubrey McClendon have been under pressure in recent from investors who are advocating for change in the company's leadership and now its business model.
Following a Reuters investigation into $1.1 billion in loans taken out against his share of company wells, McClendon has been stripped of his role of chairman of the company by the board of directors and the corporate perk granting him interest in company wells will be terminated early.
Now, the company's largest shareholder is seeking more change, urging the board and its CEO to consider the sale of the company, more asset sales and a change in strategy.
In a letter to McClendon, Southeastern Asset Management, holder of a 13.6 percent stake in Chesapeake, acknowledged the "dangers of opening such conversations" as the company struggles with concerns about McClendon's business dealings, on top of the low natural gas prices.
"However, we also don't want to use this large price-to-value gap as an excuse to refuse discussions with any potential acquirers who would be willing to pay a price today that recognizes the longer term value of the company," said the letter, filed with U.S. securities regulators on Monday and signed by Southeastern CEO Mason Hawkins.
Chesapeake shares are trading around $17 dollars per share but analysts peg the Oklahoma City, Oklahoma, company's net asset value around $25 to $30 per share.
While experts caution that pulling off a sale of Chesapeake would be extremely complicated, Southeastern said last week that it planned to take a more active role in the affairs of the company.
The Southeastern letter urged the company to accelerate its sales of assets not core to its exploration and production business, and expressed concern about the amount of time Chesapeake's management has spent on "unproductive communications" at conferences and in media interviews.
"We appreciated receiving the letter and look forward to further discussions with our largest shareholder in the days and weeks to come," Chesapeake spokesman Michael Kehs said.
Southeastern also urged Chesapeake to abandon production growth targets and instead focus on "maximizing operational cash flow." Chesapeake faces a funding gap of about $9 billion this year.
Chesapeake thirst for capital in recent years has created a very complex company. It has raised funds by selling future natural gas production, shares in royalty trusts and by finding joint venture partners. Those deals and other obligations would make it difficult for any but the most deep-pocketed partners.
"The problem you are going to have with Chesapeake is that it has become a very complex company because of the financings they've had to do," said Neal Dingmann at Suntrust Robinson Humphrey.
Dingmann's view was echoed by an investment banker who spoke last week on the condition of anonymity. "To the extent to which they have clean assets, those are the ones that they've basically marked for sale, because they can and because they have to," the banker said. "I think it's tough."
To the extent that the company's competitors would be interested in bidding, it would likely include large international oil companies that already have presence in U.S. shale regions like Total, Statoil Chevron Corp or Exxon Mobil Corp, bankers said.
Shares of Chesapeake closed down 26 cents at $17.13 on the New York Stock Exchange. The stock hit its lowest level in three years last week at $16.70, or more than 75 percent below its 2008 peak.
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