Ahead of a proxy showdown, activist investor Carl Icahn filed with SEC a fresh proposal to shareholders of Transocean LTD.

Carl Icahn

Carl Icahn’s SEC Filing:

In his today’s SEC filing, Icahn remarked Transocean LTD (NYSE:RIG) has generated poor shareholder returns and underperformed peers. He pointed out that the underperformance was due to poor capital allocation, ill-advised M & A activity, and poor execution on costs and integration.

Icahn feels the rig operator Transocean LTD (NYSE:RIG) has mistimed the cyclicality of the industry by buying low quality assets at the top of the market besides issuing equity at close to the eight year low to pay for such overpriced acquisitions. He observes that Transocean continues to purchase and build new assets at or above their NAV, thereby endangering shareholder value.

Icahn feels he has presented Transocean shareholders with a tangible solution to the company’s longstanding ineffective capital allocation and poor accountability. He believes a $4 dividend is sustainable, fiscally responsible and would support RIG shares to a valuation at or above NAV.

The billionaire investor exhorted Transocean shareholders to replace directors for their past value destruction. He points out that the past underperformance has destructed shareholder value by over $30 billion. However he believes Transocean still has sufficient cash flow to maintain a strong balance sheet and seek attractive investment opportunities.

In his filing, Icahn detailed the capital allocation proposal for 2013-2017. He has indicated that as against the existing Board’s plan for $2.24 per share dividend, Icahn’s plan is superior with average $4-5 per share dividend. Besides as against the current Board’s plan for cash to shareholders at $4 billion, Icahn’s plan would provide $7-9+ billion. Similarly on the operating cash flow front, Icahn’s plan would generate over $3.5 billion extra cash. Further as against the existing Board’s capex plan of $12.5 to 14.5 billion, Icahn’s plan would subsume only $10 billion.

Carl Icahn believes that the current board must communicate aggressive expectations to both shareholders and management for lean operations, besides holding management accountable for not meeting the targets. Besides Icahn believes Transocean will continue to have substantial access to the bond and asset backed markets despite a downgrade. It is also felt that the total cost impact would be minor as Transocean has little need to refinance debt for years.

In its recent letter to shareholders, Transocean LTD (NYSE:RIG) management urged its shareholders to support the company’s board candidates, reiterating its offer of $2.24 a share dividend and pledged more to ‘maximize long-term shareholder value’

Transocean LTD (NYSE:RIG)’s annual meeting is set for May 17.