Jana Makes Books-and-Records Demand

NEW YORK (HedgeWorld.com)--Barry Rosenstein, managing partner of Jana Partners LLC, cranked his campaign against the incumbent board of Houston Exploration Co. up a notch Thursday [June 1] with a demand under Delaware law for certain books and records that may, Mr. Rosenstein suggested, disclose breaches of that board's fiduciary obligations.

Earlier this spring, Jana sought to persuade shareholders to withhold their votes from the board, and on May 3 the hedge fund manager announced that it considered the withhold campaign a success.

In his June 1 demand, sent on behalf of Jana Master Fund Ltd., a Cayman Islands company, Mr. Rosenstein said that HEC "announced earlier this year its intention to invest a majority of the proceeds from the recent sale of certain Gulf of Mexico offshore assets in acquiring new natural gas assets and repaying debt. Such transactions are not in the best interests of the Company's stockholders as demonstrated by an analysis provided to the Board by JANA Partners. For self-serving reasons, the Board has failed to substantively respond to such analysis and it appears they have failed to even inform themselves about such analysis, despite having received this analysis over two months ago."

The letter objected also to the levels of executive compensation and benefits at HEC. Despite poor performance, it said, total compensation, excluding options, rose approximately 544% between 2003 and 2005 for William G. Hargett, the company chairman, chief executive, and president. In the same period, compensation rose approximately 259% for the other four top executives of the company combined.

The letter demanded the production of six different classes of document:

?? 1/2 Those relating to discussions of acquisitions made by or contemplated by the company over the past three years and any analysis of strategic alternatives, including, without limitation, stock repurchases;

?? 1/2 Those relating to discussions of executive compensation and executive employment agreements over the past three years, including, but not limited to, executive perquisites, and amounts paid to any executive in connection with any amendment to their employment agreements;

?? 1/2 Those relating to an asset exchange transaction between HEC and a joint venture partner, Keyspan Corporation, Brooklyn, N.Y., including the bonuses paid to certain executives in relation to the consummation of this transaction;

?? 1/2 Those relating to the expenses of the company's Alabama office, including, but not limited to, the use of corporate aircraft and other vehicles by executives and directors of the company to get to and from the Alabama office or Mr. Hargett's home in Alabama;

?? 1/2 Those relating to the company's relationship with James Floyd, who was HEC's president and chief executive from 1986 to 2001; and

?? 1/2 Those relating to the identification of the stockholders of the company.

In particular, in connection with the asset swap with Keyspan, Mr. Rosenstein expressed concern that Mr. Hargett received cash in the amount of $3.3 million, and five other executives received smaller amounts totaling more than $800,000.

Asked for comment, an HEC spokeswoman said that the company gives serious consideration to the views of all its shareholders, that it has "analyzed a range of capital deployment alternatives, including the proposal made by Jana," and that it remains "confident that our balanced approach will be most effective in generating value for Houston Exploration shareholders." The spokeswoman criticized what she called the hedge fund's "public relations campaign."

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.

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