Although it has slid back almost 2% today, Penn Virginia Corporation (NYSE:PVA) is still up more than 10% following George Soros’s letter filed with the Securities and Exchange Commission (SEC) yesterday. While the implications of the letter, that Soros is gearing up for an activist campaign, was lost on no one outside investors are tipped to what Soros believes he can accomplish by the short dated options that he holds on PVA.

Penn Virginia

$17 strike price shows that Soros thinks Penn Virginia still undervalued

Soros currently owns 9.18% of Penn Virginia Corporation (NYSE:PVA), making him the company’s largest shareholder, but he also has options to buy an additional 250,000 shares at a strike price of $17 expiring on July 19. Obviously that doesn’t mean he expects to find a buyer in the next three weeks (even with management’s full support that wouldn’t be feasible), but it probably means that he expects to have enough confidence to make a decision one way or the other by that date and that he still thinks there is upside to the current $16.30 stock price if the company goes up for sale.

“PVA shares are up 8% today, outperforming its peers by 5pp because we think the market now anticipates PVA’s Board could be compelled to evaluate/pursue a strategic company sale,” writes RBC Capital Markets analyst Scott Hanold, who rates Penn Virginia Corporation (NYSE:PVA) Outperform. “PVA shares provide an attractively valued equity option relative to its peers in the Eagleford Shale, where we see strong economic potential. Our $27/share risked NAV provides a high level of upside opportunity that we believe can be achieved through asset development or a strategic sale.”

Penn Virginia up nearly 250% in the last twelve months

At first glance it’s hard to see why Soros is upset – he’s the largest shareholder in a company that is up nearly 250% over the last year, but it has started to sink again in recent months following ‘disastrous’ investor relations efforts and those gains were made in the context of the US shale revolution. Even those incredible gains aren’t necessary keeping pace with competitors, and Soros says that Penn Virginia Corporation (NYSE:PVA) has a higher cost of capital than other companies drilling Eagle Ford shale.

It would seem like the announcement of a private offering of convertible preferred stock, at a discount to market prices, that diluted existing shares by 21% were the trigger that finally spurred Soros to action, but he bought his call options on June 6 and the announcement wasn’t made until June 10, which complicates the timeline a bit. So they were apparently just one more reason for him to pursue a sale.