SandRidge Energy Inc. directors on Thursday urged shareholders to reject a plan to oust the board, noting the move would be a “change of control” that could cost the company more than $4.3 billion.
The regulatory filing follows one day after TPG-Axon — which controls about 6.7 percent of SandRidge stock — formally called for its fellow shareholders to replace the SandRidge directors with a slate of its choosing.
In its response to shareholders, SandRidge said a change of control would “trigger an event of default” under the company's credit agreement and require SandRidge to offer to buy back all of its outstanding notes in a move that would cost the company $4.3 billion.
SandRidge also would lose its $775 million in available borrowing capacity under its revolving credit facility, the company said.
SandRidge directors also questioned the qualifications of their proposed replacements.
“The TPG-Axon Group has not identified proposed directors or a management team with expertise in oil and gas exploration and development generally, and the proposed TPG-Axon Group nominees have no experience in the Mississippi Lime play, one of the company's principle assets,” the current directors said in the filing.
The directors also challenged TPG-Axon, calling it an “opportunistic investor with short-term interests.”
TPG-Axon spokesman Anton Nicholas said it is not a short-term investor and that its proposed board is made up of experienced, high-quality directors.
“We've been investors for over a year,” he said. “We are not opportunistic activist investors. We don't become activists typically, but the behavior is so egregious that we felt an obligation to get involved here.”
SandRidge and TPG-Axon agree that shareholders have 60 days to cast their votes, but they disagree as to when the clock should start. SandRidge on Thursday reiterated its belief that the voting period began on Dec. 19. TPG-Axon, however, has said the voting will begin when the U.S. Securities and Exchange Commission responds to its Wednesday filing.
The shareholder this week filed a lawsuit in Delaware Chancery Court to address the question.
TPG-Axon has said SandRidge is undervalued, noting that its stock price has dropped 80 percent from its IPO level in 2007.
“The destruction of stockholder value has been caused by poor and erratic strategic decisions, reckless spending, and a culture of cronyism and waste that has drained value from the company,” the shareholder said in its regulatory filing Wednesday.
Another institutional investor, equity firm Mount Kellett Capital Management LP, has urged SandRidge to replace Ward. It contends the company's stock is vastly undervalued.
SandRidge stock gained 16 cents, or 2.6 percent, Thursday to close at $6.41 before SandRidge directors filed their response. The stock price then slipped a penny in after-hours trading.