Embattled Chesapeake Energy told analysts on a conference call this morning that it expects activist investor Carl Icahn to disclose a big stake in the Oklahoma City-based natural gas producer.
Chesapeake’s shares, which lost about $1 billion in value during the last 45 minutes of trading Friday, are rising today on the news of Icahn’s stake. Chesapeake chief executive Aubrey McClendon, eager to stem a wave of damaging disclosures about the companies potential liabilities and his own sideline investments, said he’d welcome Icahn’s investment.
Maybe, but Icahn isn’t necessarily a white knight. As BusinessWeek noted a few years ago, Icahn’s days as a corporate raider are behind him, but as a private equity investor, he still likes to go after undervalued companies and shake them up. These days, Icahn’s targets usually stay public. That means investors who buy alongside the billionaire often make money, which explains today’s rise in Chesapeake shares.
Chesapeake could be a classic Icahn play. It’s carrying some $13 billion in debt, more than Exxon Mobil, and it has a complicated array of financing tools. Late Friday, it announced a high-cost debt deal to stave off a liquidity squeeze amid slumping natural gas prices.
In other words, Icahn may see an opportunity for more than just passive investment. He could be positioning himself for a board fight, or even McClendon’s ouster. He could also be hoping to put the company in play, although its complicated financial structure would make it a difficult takeover.
In Houston, Icahn’s had success buying into El Paso Corp. before its acquisition by Kinder Morgan, and he was on the right side of the takeover battle for Southern Union.
But Icahn also derailed a takeover bid for Houston-based Dynegy, arguing shareholders deserved a high offer. When one didn’t emerge and the company careened toward bankruptcy, Icahn helped orchestrate a sweetheart deal that gave shareholders — including himself — prime assets and left the scraps for bondholders to squabble over in court.
Eventually, Dynegy reached a settlement that essentially returned at least some of the assets to settle bankruptcy claims.
In other words, Icahn knows how to make money for himself, and other investors may benefit, but he isn’t necessarily the white knight that McClendon and Chesapeake seem to think he is.