* 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 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
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
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
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