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Shareholder urging Chesapeake not to dismiss acquisition offers

Southeastern Asset Management Inc. is leveraging its position as Chesapeake Energy Corp.'s largest shareholder to suggest company officials focus on maximizing cash flow, while considering acquisition offers.
BY JAY F. MARKS Published: May 8, 2012

Chesapeake Energy Corp. should be open to any takeover offers as it deals with the fallout of questions about CEO Aubrey McClendon's personal business dealings, the company's largest shareholder said Monday.

Southeastern Asset Management Inc. sent a letter to McClendon and the Chesapeake board Monday detailing its concerns about the company.

“We urge the company to take action in three areas: debt targets, management focus and strategic options,” Southeastern CEO O. Mason Hawkins and two other officials wrote.

Southeastern said Chesapeake's current share price is far below its net asset value, so it would not support a “lowball” bid for the company.

“We also don't want to use this large price-to-value gas 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,” officials wrote Monday in a letter to McClendon and Chesapeake's board.

The Memphis-based money manager, which holds more than 13 percent of Chesapeake's outstanding stock, last week indicated it would take an active role in Chesapeake's affairs.

The letter was the first public sign of that.

“They own 90 million shares or 13.6 percent and have lost more than $750 million in the last five weeks,” said Fadel Gheit, an energy analyst with Oppenheimer in New York. “They will likely force the company to sell most, if not all, of its assets. They will get their money back and more.”

Chesapeake's stock has dropped more than 10 percent since April 18, when Reuters reported McClendon has secured up to $1.1 billion in personal loans by using his stake in the company's wells as collateral. A subsequent report indicated McClendon and co-founder Tom Ward operated a hedge fund from inside Chesapeake from 2004 to 2008 that traded in oil and natural gas futures.

Ward has said he doesn't see anything wrong with the arrangement, but Chesapeake and McClendon have not commented on the report about Heritage Management Co. LLC.

McClendon has agreed to cede his position as Chesapeake's chairman and allow the board to end his well participation program next summer, 18 months before it was due to expire.

McClendon sent an email Monday to Chesapeake's 13,400 employees offering “some perspective from my vantage point” on the scrutiny facing the company over the past few weeks.

He did not address the reports specifically, but assured employees “the board and I have taken actions to put the recent distractions behind us so that we can move forward together with our plan to continue building value for the company's shareholders and other stakeholders.

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