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SandRidge shareholder vote could have broader implications for Oklahoma City

by Adam Wilmoth Published: February 11, 2013
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Over that time, SandRidge has released only two public statements and repeatedly has declined to comment to The Oklahoman and other news outlets.

“I think communication is important, especially during a difficult time,” Womack said. “You're seeing the other side spewing and throwing things around. I think communication is key. They've done some of that, but they have not gotten into the details of some of the issues that have been raised.”

While TPG-Axon and Mount Kellett have claimed specific failings in SandRidge's leadership, Dollarhide said the biggest problem facing the company is the broader natural gas market.

“At the end of the day, the biggest tripping point for both Chesapeake and SandRidge had less to do with possible conflict of interest or personal dealings of the CEO and had a heck of a lot more to do with the ultra bear market for natural gas prices and the slow reaction to diversifying into more oil plays,” he said.

TPG-Axon, however, has pointed out that SandRidge's stock price has suffered more over the past five years than other energy producers.

“SandRidge stock has declined almost 80 percent from its IPO (initial public offering) level in 2007 and is the single worst performing energy stock over that period in the Russell 1000 index,” TPG-Axon CEO Dinakar Singh wrote in November.

A growing trend

The efforts by Mount Kellett and TPG-Axon against the SandRidge directors come at a time when a growing number of companies throughout the country are facing confrontation from active shareholders.

“There's been a resurgence of this kind of activity where large, seemingly passive, institutional players are seeing value in throwing their weight around,” Dollarhide said.“So there is a trend now, but this is nothing new. The pioneers of this effort were the likes of Boone Pickens and Carl Icahn. They've been doing this for years.”

Activist shareholders launched 219 such campaigns last year, the most since 2008, according to data from FactSet Research Systems.

Oppenheimer energy analyst Fadel Gheit said activist investors are turning the tables on entrepreneurs, claiming they can do a better job in creating value at the companies.

“This is going to be contagious,” he said.

He said activists are bringing in a completely different way of looking at things.

“These guys now are very bold and very methodical at how they look at things. They really, really analyze the company very thoroughly. No analyst will have the time or the resources to do that. They bring a different angle, a totally different ingredient into the mix.”

An uphill fight

About 61 percent of SandRidge's shares are controlled by institutional and mutual fund owners.

The largest SandRidge shareholder is Fairfax Financial Holdings. The Canadian investment firm has bought shares aggressively over the past quarter. It now controls about 12.7 percent of SandRidge's outstanding shares.

Fairfax is considered a passive SandRidge investor. Spokesman Paul Rivett told Reuters this week that the group supports Tom Ward and the current SandRidge directors.

Fairfax CEO V. Prim Watsa — sometimes referred to as Canada's Warren Buffett — has invested the company in 43 others throughout numerous industries including Berkshire Hathaway, Bristol-Myers Squibb, Citigroup, Dell, Intel, Johnson and Johnson, The New York Times Co., U.S. Bancorp, Walmart and Wells Fargo.

Though usually a quiet investor, Fairfax doesn't shy away from taking an active position. The company controls a 5.12 percent stake in BlackBerry, and Watsa in January was named to the board after a shareholder effort led to a new CEO.

Fairfax reported that on Sept. 30, 2012, it controlled 22.2 million SandRidge shares, up from 21.9 million Sept. 30, 2011.

But over the past three months, the company has nearly tripled its stake to 62.5 million shares.

The largest individual SandRidge investor is CEO Tom Ward, with about 5.5 percent of the company's shares.

While shareholder initiatives have been successful at other companies, TPG-Axon and Mount Kellett still must have help from other SandRidge shareholders if they hope to force the Oklahoma City company to make changes.

For the current consent solicitation effort to pass, holders of a majority of SandRidge's more than 491 million shares must mail in the proper voting card. Any shares not cast in favor of the activist shareholders will be considered votes for the existing directors.

Voting is scheduled to close March 15.

SandRidge and TPG-Axon both have set up websites, where they present their arguments to shareholders. The company's argument can be found at SupportSandRidge.com. TPG-Axon's site is shareholdersforSandRidge.com.

High stakes

TPG-Axon controls 6.7 percent of SandRidge stock and has invested in the Oklahoma City energy company for about a year. The company spent $27 million in November and December buying 4.6 million shares, increasing its stake from 4.7 percent.

The shareholder has a position in 23 companies in a wide variety of industries, including Halliburton Co., Dollar General Corp., Time Warner Cable, former Oklahoma City-based Tronox Inc., Sirius XM Radio and Wyndham Worldwide Corp.

TPG-Axon usually is a passive investor, but in November it notified the U.S. Securities and Exchange Commission that it had become an active investor in SandRidge, meaning it planned to have more contact with the company and attempt to exert more influence on corporate decisions.

“Most often, we are ‘involved' shareholders, not ‘activist' shareholders,” TPG-Axon CEO Dinakar Singh wrote in the first of three letters sent to SandRidge. “However, in instances where we come to believe that management is acting in a manner that is destructive of value, we believe it is important to actively engage.”

A week after TPG-Axon sent its first letter to SandRidge, Mount Kellett wrote the Oklahoma City company's directors, echoing many of the same points.

Mount Kellett controls 4.5 percent of SandRidge stock and has been a passive investor in the company since 2009.

CONTRIBUTING: Business Writer Jay F. Marks

by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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My hope is that it won't succeed and that the Oklahoma business will continue to be run by Oklahomans who know the business and are invested in the community.”

Greg Womack,
President, Womack Investment Advisers Inc.

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