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June 19, 2006 at 08:00 PM
NEW YORK (HedgeWorld.com)–After a series of overtures to the management of Houston Exploration Co. and a vote-withhold campaign before the annual meeting in April, the hedge fund Jana Partners has decided to go ahead and offer to buy the Texas-based oil and gas company for $62 per share, cash.
The offer from Jana, a $5 billion hedge fund that currently controls 12.3% of HEC’s equity, values the company at approximately $1.8 billion.
“We believe that there is still tremendous value in Houston Exploration, but that it will continue to be destroyed as long as the Company remains in the hands of those who show far less interest in maximizing this value than they do in transferring it to the company’s management,” wrote Jana Partners Managing Partner Barry Rosenstein in the offer letter addressed to the HEC board of directors.
Jana’s June 12 offer followed a list of complaints that provide a roadmap of the increasingly contentious relationship between HEC and Jana, one of its largest shareholders, since the hedge fund announced its position in the company early this year.
In April, Jana submitted an analysis to the board recommending a $650 million stock repurchase following HEC’s sale of offshore Gulf of Mexico assets to refocus on onshore natural gas production, a new strategic direction for the company. Jana’s analysis earned no “substantive response” from the board, according to the hedge fund.
Jana then advanced a vote-withhold campaign ahead of the company’s April 28 annual meeting, which resulted in 30% of all votes behind withheld–a figure Jana said was artificially low, because the hedge fund had at that time not yet redeemed all of its options.
Jana also has raised the issue of executive compensation, calling upon the HEC board to justify what it described as a 500% increase in compensation for Chief Executive William Hargett between 2003 and 2005, while the other four top executives at the company saw a combined increase of 259% and the company’s stock has “vastly underperformed” in comparison to its peers, according to the fund.
On June 1 Jana demanded, citing Delaware law, that HEC provide books and records relating to acquisitions, executive compensation, executive expenses and the company’s dealings with joint venture partners and former executives; Jana argued that these documents could shed light on “potential breaches of fiduciary duty and corporate waste by the Board.”
