Change is coming to Chesapeake Energy Corp.
Bowing to pressure from its two largest investors, Chesapeake will shake up its board this month with five new directors, it announced Monday.
Four will represent Southeastern Asset Management and activist billionaire Carl Icahn, who together hold more than 21 percent of the company's stock, while the fifth will be Chesapeake's new independent chairman.
Those changes will be made on or before June 22, the company said Monday.
“We are pleased to announce these important actions taken by the board in consultation with our two largest shareholders to further enhance Chesapeake's corporate governance for the benefit of all shareholders,” said Merrill A. “Pete” Miller Jr., Chesapeake's lead independent director. “We greatly appreciate the substantial contributions of all of our directors, but recognize our shareholders' desire for change.
“Following implementation of these initiatives, the Chesapeake board will have been substantially reconstituted with five new independent directors, including a new independent chairman, in addition to Lou Simpson who joined the board last year.”
The board announced plans May 1 to replace CEO Aubrey McClendon as the company's chairman amid ongoing questions about personal loans used to fund his share of the company's wells.
Reuters reported April 18 that McClendon had secured up to $1.1 billion in loans using his 2.5 percent stake in the Chesapeake wells as collateral. Some of the loans reportedly came from a private equity firm doing business with the company, spurring questions about a potential conflict of interest and a board review.
Several institutional investors, including Icahn, subsequently called for a leadership change at Chesapeake. Some called on investors to vote against the re-election of Oklahoma State University President Burns Hargis and retired Union Pacific Corp. executive Richard K. Davidson to the board.
Icahn said he was pleased with Monday’s announcement, which drove up Chesapeake’s stock. It closed trading at $16.52, up 94 cents a share.
“We appreciate the board's willingness to listen to shareholders and to respond appropriately,” he said. “Under Aubrey's leadership, Chesapeake has assembled great assets and I am confident I can help the Company create significant shareholder value from these assets.
“We enjoyed a very good relationship when I acquired almost 6 percent of the company's stock in late 2010 and I look forward to a similarly constructive relationship now.”
Icahn or one of his representatives will occupy one position on the reconstituted Chesapeake board, while the other three new members will be designated by Southeastern Asset Management.
The Memphis-based money manager, which owns more than 13 percent of Chesapeake's stock, already had placed Simpson on the board.
“We are pleased that Chesapeake is being responsive to issues raised by us and many of the company's other shareholders,” CEO O. Mason Hawkins said. “These steps to reconstitute the board will enhance oversight and provide greater accountability.”
McClendon said the changes were the result of the board's ongoing efforts to address shareholder concerns.
“I am fully supportive of these measures and remain focused on executing Chesapeake's strategy,” he said. “I have great respect for the talent, commitment and dedication of our current board members, each of whom has played a key role in helping build our successful company.
“At the same time, I look forward to working with our new directors to continue creating substantial shareholder value from the extraordinary set of assets Chesapeake has acquired and developed in recent years.”