An hour after SandRidge Energy Inc. announced its Wednesday settlement with dissident shareholder TPG-Axon Capital, new SandRidge President James D. Bennett told employees the company did not expect to lose control, but opted to settle to end the distraction.
Bennett also said it is unlikely that SandRidge's newly expanded board of directors will sell the company.
TPG-Axon had asked shareholders to approve its plan to replace all seven of SandRidge's directors. The settlement ended a four-month proxy fight two days before the final votes were to be counted.
As part of the settlement, SandRidge agreed to expand its board to 11 to accommodate four new directors selected by the New York hedge fund.
“We don't think we were going to lose the consent. There's always risk around that, though,” Bennett said during the employee meeting, according to an audio recording of the meeting obtained by The Oklahoman.
“If we win the consent, then the whole process just rolls over to the annual meeting. So this whole thing — this whole distraction, news campaign, distraction for all of you, uncertainty — would continue for many more months and we didn't think that was the right thing to do for the company. At the annual meeting, you never know what's going to happen there; it's a little different form of consent. So look, adding four new board members now, keeping our existing board members, adding and expanding the board to 11, we think is not that bad of an outcome.”
TPG-Axon in November outlined several steps the board should take to improve the company's stock price. One recommendation was to consider selling the company.
“If you look at the progression of their statements, they've really backed off that,” Bennett told SandRidge employees. “It was easy to come out of the gates in November and say, ‘Sell the company,' but they've backed off that quite a bit. And if you look at the market right now, it's not a great time to sell companies, or even assets. It's kind of a buyer's market. So I don't think that's the case.”
Not everyone shares the sentiment, however.
Industry analyst Mark Hanson said he thinks the most likely scenario at this point is that SandRidge will be bought by either a private equity firm or a larger oil and natural gas producer.
He said the company likely will first sell its Gulf of Mexico assets and then sell the rest of the company.
“You're not going to pick this thing apart. It's really two assets at this point,” said Hanson, an analyst with Morningstar in Chicago. “They're two very different resources: one is onshore, and the other is offshore. One is more prospective while the other is more established. To find a buyer with an appetite for both simultaneously, you're probably going to have to haircut one to take the other. They probably carve off the Gulf of Mexico and sell the remaining company outright to someone.”
Even if SandRidge were taken over, most of its workforce likely would stay in state, Hanson said.
“SandRidge has a valuable asset in northern Oklahoma. I think you're going to see development continue on the areas that SandRidge is currently working on,” Hanson said.
Most of the corporate jobs in Oklahoma also likely would still be needed, he said.
“Anywhere you have an acreage position that size with 1.8 million net acres, you're going to have a regional office,” he said. “In my experience, that's typically how it plays out. A lot of companies have regional offices. Apache has a Permian office. Range Resources has a Marcellus Shale office.”
The expanded board will conduct a review to determine whether to fire CEO Tom Ward. If Ward is retained, three current SandRidge directors will resign and one more TPG-Axon nominee will be added to the board, giving TPG-Axon majority control of the board.
Bennett, who is also SandRidge's chief financial officer, became the company's president on Friday, succeeding Matthew Grubb, who left the company as part of the settlement agreement with TPG-Axon.
Bennett insisted Wednesday that TPG-Axon's director nominees do not control the board.
“TPG Axon is not on the board. That's a little bit of a source of confusion,” he said. “Some people think that they now control the company. That couldn't be farther from the truth. The board controls the direction of the company under the guidance of management. So these four folks, they just went and recruited. They had a headhunter go call a bunch of people, we know a lot of people they called, and they found these folks and they picked them. So it's not like these are their designees that sit on the board and run the company now.”
Bennett later restated his assertion about TPG-Axon's influence.
“Again, they're not going to be on the board. They don't have a direct say. They don't have control. They're just like any other shareholder. We have many shareholders that own between 5 and 7 percent of the company like they do. We talk to them. We have dialogue,” he said.
While Bennett said the new directors are not controlled by TPG-Axon, he said that if the shareholder in June replaces three existing directors with one of its choosing, it would control the board.
CONTRIBUTING: Paul Monies and Jay F. Marks, business writers