Carl Icahn: Chesapeake's savior or a trader?

Mon May 14, 2012 6:15pm EDT

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007. REUTERS/Chip East

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007.

Credit: Reuters/Chip East

(Reuters) - Billionaire activist investor Carl Icahn has been circling the embattled natural gas company Chesapeake Energy for weeks now.

Shares of Chesapeake rose sharply on Monday in part on media reports that Icahn, the well-known corporate raider, may be about to take a big stake in the company that is under fire for arranging a series of lucrative perks for its founder and chief executive officer, Aubrey McClendon.

On April 30, Icahn talked positively about Chesapeake on CNBC television even though he refused to disclose whether he had repurchased any stock. "I do think Chesapeake is undervalued," Icahn said.

As of Monday, the shares have lost 38 percent so far this year.

On Sunday, the Wall Street Journal reported that Chesapeake is expecting Icahn, who had held Chesapeake equity positions in 2011, to disclose soon that he has taken a significant stake in the natural-gas company.

Chesapeake itself would not confirm that Icahn would make such an announcement and a representative for Icahn declined to comment. As of late Monday, Icahn had not disclosed any new position in Chesapeake in a regulatory filing.

That said, McClendon on a conference call Monday made note that Icahn's previous investment in Chesapeake has paid off handsomely.

"We have seen that (report) and wouldn't be surprised if Carl became a large shareholder," McClendon said. "He made, I think, over $500 million, and he called me to thank me" after the deal.

Icahn bought a stake in Chesapeake in late 2010, but sold it a few months after the company raised nearly $5 billion through an asset sale, which pushed the shares sharply higher at the time.

It is not clear now if Icahn is once again viewing Chesapeake as a shrewd short-term trade or a long-term haul to push for real structural change akin to O. Mason Hawkins of Southeastern Asset Management.

Southeastern, Chesapeake's largest shareholder with a 13.6 percent stake, is turning activist and recommending that the company's board be open to a sale.

Hawkins would not comment on reports that Icahn may be getting back into the stock.

It is not unusual for Icahn despite his reputation as diehard activist to take positions in companies purely for a trade. He recently did that with LightSquared, the telecom company controlled by Phil Falcone's hedge fund that filed on Monday for bankruptcy protection.

Late last year, Icahn bought about $250 million of LightSquared debt when it was trading in the 40-cents-on-the-dollar range. At the time, it was believed Icahn was trying to persuade other LightSquared debtholders to push Falcone to reduce his 96 percent equity stake in the telcom firm and give creditors an ownership stake.

Then, about a week ago, Icahn suddenly sold his entire block of debt when another hedge fund offered at 60 cents on the dollar - giving him a tidy profit.

Damien Park, president of Hedge Fund Solutions, which analyzes the dealings of activist traders who push for management changes, said Icahn's approach to Chesapeake was curious.

"It's a bit unusual for Icahn to be so vocal about a stock as being undervalued before he's ready to publicly press for change," said Park.

Still, Park said he can see why Icahn might be looking to get into the stock given how beaten-down it is.

"There's a handful of companies that activists will circle around and look for a buying opportunity. And obviously when Chesapeake's stock price dipped dramatically following all of those big disclosures over the last couple of weeks, it looked like a buying opportunity for an activist like Carl Icahn," Park said. "I wasn't surprised to hear the rumor that he might pop up as a substantial owner over the next couple of days."

(Reporting by Matthew Goldstein and Jennifer Ablan in New York; editing by Matthew Lewis)

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