An influential shareholder advisory firm is backing a SandRidge Energy Inc. shareholder's push for a leadership change at the Oklahoma City oil company.
Institutional Shareholder Services said it is reluctant to recommend major changes to a company's board because of potential unintended consequences, but at SandRidge, “the apparent failures of stewardship on this board are legion.”
Maryland-based Institutional Shareholder Services provides governance research and analysis to more than 1,700 clients to help them make informed investment decisions.
The report released Friday examines SandRidge's ongoing proxy fight with hedge fund TPG-Axon Capital, one of the company's largest shareholders.
It recommends replacing five of SandRidge's seven current board members, an option that is not available to shareholders at this point.
“In making its case that such drastic change is needed, the dissidents have not only pointed to the erosion of more than 70 percent of market value over the nearly six years since IPO, but have advanced a credible narrative that the company's abrupt, piecemeal approach to corporate strategy and concomitant lack of capital discipline have increasingly limited the company's financial flexibility, and engendered a deep distrust in the market,” according to the 24-page report.
SandRidge said Friday it strongly disagreed with the advisory firm's recommendation.
“We have a strong and experienced board that is committed to delivering value to all stockholders,” spokesman Greg Dewey said. “We continue to urge SandRidge stockholders to reject TPG-Axon's nominees.”
SandRidge has argued TPG-Axon's proposed directors do not have sufficient experience to shepherd the company into the future, but Institutional Shareholder Services concluded TPG-Axon CEO Dinakar Singh and Edward W. Moneypenny have financial and capital market experience that would benefit SandRidge.
Singh heads TPG-Axon and is a former partner at Goldman Sachs, while Moneypenny was chief financial officer at three energy companies, including Oryx Energy Corp., which merged with Kerr-McGee Corp. in 1999.
TPG-Axon said Friday's report is consistent with its view that change is needed at SandRidge to maximize shareholder value. The hedge fund continues to urge shareholders to replace the current board with its nominees.
“Our strong slate of director nominees has the right combination of experience, expertise and skill that make them the right leadership team to restore order at SandRidge and provide the strategic insight required to maximize stockholder value — an area where the current board has clearly failed,” TPG-Axon said.
Institutional Shareholder Services recommended replacing SandRidge board members Everett R. Dobson, William A. Gilliland, Daniel W. Jordan, Roy T. Oliver Jr. and Jeffrey S. Serota in favor of TPG-Axon nominees Singh, Moneypenny, Stephen C. Beasley, Alan J. Weber and Dan A. Westbrook.
“This is purely a matter of math — having too many qualified nominees for the limited number of open seats,” according to the report.
Despite its concerns about SandRidge's management, Institutional Shareholder Services stopped short of calling for the ouster of CEO Tom Ward, as TPG-Axon and fellow institutional shareholder Mount Kellett Capital Management have done, because there is not a fully vetted succession plan in place.
“This recommendation on the CEO is not an endorsement of his tenure, but a recognition that there is no other CEO candidate at the moment, with transition to a new CEO expected quickly if dissidents are elected,” the report states.
Institutional Shareholder Services also suggested keeping Jim J. Brewer on the SandRidge board because he appears to have the most relevant operating experience as an oil and natural gas industry veteran. He also is the newest member of the current board, having been added in 2011.
Shareholders have until March 15 to decide whether they want to side with SandRidge or TPG-Axon in the proxy fight. They have received cards that will allow them to decide whether to retain or replace the current board.