With the clock ticking down on a takeover attempt of SandRidge Energy Inc. by one of its largest shareholders, a judge has barred the company's board from fighting back until it acknowledges it will cede control if that is what shareholders want.
SandRidge's board has said hedge fund TPG-Axon Capital's move to oust the board, if successful, would constitute a “change of control” that could cost the company more than $4.3 billion. The company later backed off that figure.
Delaware Chancery Court Judge Leo E. Strine Jr. on Friday blocked the SandRidge board from soliciting votes in its ongoing proxy fight until it approves TPG-Axon's director candidates.
SupportSandRidge.com, the company's website to educate shareholders about its fight against TPG-Axon, was not available late Friday.
“Given that the incumbent board has admitted it has no basis to doubt the integrity of the TPG slate or the basic qualifications of that slate to serve with competence as the directors of a public company, the incumbent board is merely basing its refusal to make a decision on its contention that the incumbents are the better choice at the ballot box,” Strine wrote in his 39-page ruling.
SandRidge and TPG-Axon did not respond Friday to requests for comment on the ruling.
SandRidge shareholders have until March 15 to decide if they want to stick with the current board or let TPG-Axon's nominees take over.
TPG-Axon, which owns 7 percent of SandRidge's outstanding stock, is seeking a management change at the Oklahoma City oil company because of the poor performance of its stock, which has dropped 80 percent from its initial public offering in 2007.
SandRidge contends the current board is best suited to lead the company as it continues its transition into an oil producer, focused on the Mississippian play in northern Oklahoma and southern Kansas.
The company's board has said a TPG-Axon takeover would trigger a default in its credit agreement, forcing SandRidge to offer to buy back all of its outstanding senior notes. It later acknowledged that offer is unlikely to be accepted since the notes are trading for more than the repurchase price specified in its indentures.
Evidence in the Delaware case confirmed that is not an issue. SandRidge lender Morgan Stanley told the board its own financial institution would back the $4.3 billion lent to SandRidge even if TPG-Axon's slate took control, the judge wrote in his ruling.
The Delaware case was filed by shareholder Gerald Kallick, who accused the board of breaching its fiduciary duty by refusing to approve TPG-Axon's proposed slate of directors to avert a possible change of control. Kallick supports TPG-Axon's consent solicitation.
Edmond investment adviser Greg Womack said the lawsuit was probably a last-ditch effort by TPG-Axon and its supporters to sway shareholders.
“They're trying to force SandRidge to let the shareholders decide what is the best option for them,” said Womack, president of Womack Investment Advisers Inc.