Walter Energy accuses activist fund of 'serious omissions'

March 25 Mon Mar 25, 2013 12:25pm EDT

March 25 (Reuters) - U.S. coal miner Walter Energy Inc struck back on Monday against the British hedge fund that says it can improve the miner's performance by replacing half of its board, citing "serious omissions" in Audley Capital Advisors LLP's proxy statement.

In a letter to shareholders, Walter Energy said the hedge fund's statement contains omissions regarding the background of its nominees, and noted that one of Audley's candidates has been implicated in an insider trading case. It said also that Audley controls well under 1 percent of its shares.

Audley said in February that it would nominate five candidates for election to the coal miner's board, arguing that poor management, not a tough market, has been behind the company's poor financial results.

In Monday's letter, signed by Walter Energy Chairman Michael Tokarz and Chief Executive Walt Scheller, the company said it had reviewed Audley's nominees and that they lack the leadership experience needed to be board members.

The company also said Audley failed to disclose that one of its nominees, Robert Stan, is currently defending himself against charges of insider trading and tipping when he was chief executive of Grande Cache Coal.

In a notice of hearing dated Dec. 5, 2011, the Alberta Securities Commission accused Stan of sharing material information with his wife, who then sold securities of Grande Cache. It said he had also exercised options to buy securities of Grande Cache during the same period. On the regulator's website, the case is listed as "decision on merits pending".

Walter Energy, which has operations in Western Canada, the United States and the United Kingdom, mainly produces metallurgical coal, used to make steel.

AUDLEY FILES PROXY

Walter Energy also questioned Audley's representation of the leadership roles held by nominee Edward Scholtz, noting that Audley's proxy statement lists him as a current director of Talon Metals Corp.

Scholtz, former chief executive of Talon, is not listed as a director on the company's website, and a Talon management information circular lists Feb. 8, 2012, as the date of his departure from the company.

Walter also disputed Audley's assertion that Scholtz was chief operating officer of CIC Energy Corp from 2008 to 2012, saying that role was held by someone else in 2007 through 2010. CIC's annual disclosures show that Tore Horvei was chief operating officer from January 2007 to at least the end of February 2009.

Stan and Scholtz could not immediately be reached to comment on the Walter Energy statement.

Separately on Monday, Audley said it had filed definitive proxy materials, and urged shareholders to vote for its slate.

"We firmly believe that the inherent value in Walter Energy is not reflected by the current share price, and remain confident that our five highly qualified and experienced board nominees possess the mining and public company experience necessary to unlock the underlying near- and long-term value at the company," Julian Treger, managing director of Audley Capital, said in the statement.

Walter Energy's major shareholders include J.P. Morgan Asset Management, with a 6.9 percent stake as of Dec. 31, according to Thomson Reuters data, and Harris Associates LP, with a 5.0 percent stake as of Dec. 31. The company's top 10 investors own just over 40 percent of its outstanding shares.

The miner said it is working to reduce its debt and improve liquidity, and that it is bringing down its cost of production.

Shares of the coal producer fell 4.8 percent to $28.04 on Monday on the New York Stock Exchange. The stock is down more than 22 percent so far this year.

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