Risk & Compliance

Big Buyback Ends Kerr-McGee Proxy Fight

The deal evokes memories of the 1980s, when Carl Icahn frequently walked away with a premium for his shares in exchange for not pursuing a hostile ...
Stephen TaubApril 15, 2005

Kerr-McGee Corp. announced that it will buy back $4 billion of stock as part of an agreement to end a proxy fight with Carl Icahn and activist hedge fund JANA Partners LLC. The company also agreed to cut its dividend and sell some “shorter-life properties” in the Gulf of Mexico, the United States, and the North Sea for an estimated $2 billion to $2.5 billion.

The investor groups agreed to immediately cease proxy-solicitation activities and withdraw their board nominees from consideration before the energy company’s annual meeting next month. Kerr-McGee agreed to dismiss its complaint against the investor groups filed in the U.S. District Court for the Western District of Oklahoma.

The deal evokes memories of the 1980s, when Icahn frequently walked away with a premium for his shares in exchange for not pursuing a hostile takeover.

In a statement, Icahn and JANA’s Barry Rosenstein said that “the steps that Kerr-McGee has undertaken will prove beneficial to all its shareholders,” according to Bloomberg. “This settlement enables the company to deliver on its commitment to deliver stockholder value and to advance its strategy as a pure-play exploration and production company,” said Kerr-McGee chairman and chief executive officer Luke R. Corbett, in a statement.

Under the buyback arrangement, on or about April 18 Kerr-McGee will initiate a Dutch-auction tender offer for up to $4 billion of its stock, for between $85 and $92 per share. The $85 minimum reflects a 15 percent premium over the company’s closing price on Wednesday, the last full trading day before the announcement. The company added that it expects the share repurchase to be accretive to earnings and cash flow per
share.

At one point Thursday, Kerr-McGee’s stock was up more than 10 percent.

Bond investors, however, will not like the news. Citing the buyback, Fitch Ratings downgraded Kerr-McGee’s debt from BBB to B, according to Reuters. “Kerr-McGee’s action today is an abrupt change in
the company’s financial and operational strategy,”
Fitch stated in a report.