Market slide wipes out CEO’s Chesapeake holdings
McClendon bought stock in energy company On margin
BY DON MECOY
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43
Published: October 11, 2008
A slumping stock market forced Aubrey McClendon, the high-profile head of one of the state’s most dynamic energy companies, to sell "substantially all” of his 33.4 million shares of Chesapeake Energy stock, he disclosed Friday.
"I am very disappointed,” McClendon said in a statement issued after markets closed. "These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis.” Much of McClendon’s estimated $3 billion fortune was represented by his Chesapeake holdings. He has interests in real estate, hedge funds and in other ventures through a venture capital fund. McClendon also is a minority owner of the Oklahoma City Thunder. No U.S. chief executive officer has bought more of his own company’s stock in recent years than McClendon, even as the shares reached all-time highs. His appetite for Chesapeake stock made him "a darling of Wall Street,” Tulsa money manager Jake Dollarhide said. But his purchases were made on margin, meaning he used borrowed money. As the value of the stock fell, McClendon was forced to raise cash to meet margin calls. Recent losses — Chesapeake shares have plummeted 60 percent in the past three weeks — left him unable to fulfill those requirements. McClendon has been a dynamic leader of the fast-growing company, which has carried heavy debt loads to finance its expansion. "They have always been the risk takers, the gunslingers,” Dollarhide said. "When it has paid off, it has paid off handsomely. But in their history, shareholders have experienced a wild ride.” It’s not known whether McClendon’s losses will affect his ownership position with the Thunder or curtail his philanthropic efforts, Chesapeake Senior Vice President Tom Price Jr. said. "Aubrey wants to see Oklahoma grow and prosper, and through his generosity and philanthropy has done that, not just through Chesapeake Energy and the corporation, but personally and directly,” Price said. "And when the situation has righted itself, he will continue to demonstrate his leadership and charitable heart.”
‘My confidence ... remains undiminished’
Despite his losses, McClendon, 48, said he still believes in Chesapeake, the nation’s largest producer of natural gas.
"I have been the company’s largest individual shareholder for the past three years and frequently purchased additional shares of stock on margin as an expression of my complete confidence in the value of the company’s strategy and assets,” McClendon said in his statement. "My confidence in Chesapeake remains undiminished, and I look forward to rebuilding my ownership position in the company in the months and years ahead.”
Bob Rader, senior vice president of Capital West Securities, said he was saddened by McClendon’s loss.
"It’s unfortunate, but that’s personal,” Rader said. "It doesn’t affect the company.”
McClendon remains among the nation’s highest-paid executives, earning a compensation package last year valued at $25.5 million.
Chesapeake announced on Friday that it is planning to sell assets and cut back on its land-leasing program that has fueled the company’s impressive growth.
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With Aubrey the #1 stock holder, Tom Ward the #2 and Clay Clay #4 the ownership group took a major bath. Aubrey went from being worth $2 billion to being a "run of the mill" millionaire worth about $30 million. Clay Clay at least has more of his wifes fortune to suck off of but the rest are going to be hurting big time.
The cash calls for the Robber Barrons could break these guys. One thing for sure, if they didn't own the team already they couldn't buy one now, they are no longer "NBA qualified" ownership.
Chesapeake has to really scramble right now. They have been agressively spending around the country with major projects leveraged on the high stock price and skyrocketing energy prices. With the crash in the stock, lower demand, and plumeting prices they could end up having to liquidate.
Karma always comes back to bite those that screw over others.
(See link: http://en.wikipedia.org/wiki/Ted_Haggard#Teachings_on_homosexuality)
It's OK to be gay, Charles. Come on out.
you win some & lose some...............
Tell Oral I said hey
Enough said. Go Chesapeake!
Agreed Common Sense...Okies rooting against one of their own...Classy
I hope I'm wrong, but this could be very bad for Chesapeake's employees and the Oklahoma economy.
I am sure that Aubrey knew this could possibly happen, however at that time the possible gains far outweighed the potential negative outcome. You cannot fault someone for this type of thought process. There are people that choose to operate in high risk mode and other that choose the low risk mode. Aubrey makes it clear he is the visionary for Chesapeake and as such, the way Chesapeake operates is a reflection of his high risk mode.
The downside of Aubrey's decision to purchase stock in this manner has come to a reality. It is easy to look at this and allow your feelings to go negative towards Aubrey and attack. However, the upside of this mode of operation should not be over looked. Aubrey and Chesapeake have provided many positives for the City, State and the Nation, in a very short amount of time. The positive effects associated with this type of operation should also be kept in mind. Our great City and State would not be this far progressed without the added benefits of Chesapeake. For sure we can never forget what happened during the previous energy bust and yes, history could and probably will, repeat itself. The important thing is to take full advantage of the upside and to always be prepared for the downside and not be so close minded to think that the negative side of the decisions will never become reality.
What happened to Aubrey is his own doing and I am sure he has a recovery plan. I don't think it merits either negative or positive strokes. Just recognize the facts, learn from them and apply that to your own mode of operation.
People like McClendon are the innovators in our society. They have attributes that many others don't, including the ability and willingness to take risks. When the risks pay off, they make money for themselves and, to the delight of even the negative posters to this blog, make money for others by creating jobs, paying taxes, etc. When the risks don't pay off, they lose--and those losses can be large.
Those who celebrate when others take risks and lose seldom stop to think where we would be without people like McClendon. His company is directly responsible, among other things, for thousands of jobs both in OKC and around the country, reinvigorating the local economy, and funding numerous charitable endeavors. Without companies like his, those who take so much comfort in his losses wouldn't have an NBA team to cheer for, wouldn't have entertainment from the off-Broadway shows that come to the Civic Center, wouldn't have concerts to enjoy at the Ford Center, wouldn't have things like the Myriad Gardens to enjoy, may not have jobs, etc. etc. etc.
I have no idea about McClendon's personal financial situation, though I suspect he is likely still worth billions. Regardless, he will be back--and likely will be creating wealth and jobs and paying taxes for years to come, and the fruits of his labors will long be enjoyed by all negative posters to this site.