News broke late yesterday of a 13D filing by Icahn Capital that showed Carl Icahn had acquired a 9.98% stake in Seventy Seven Energy Inc (NYSE:SSE), the oil fracking services business that was spun off last month by Chesapeake Energy Corporation (NYSE:CHK) in its ceaseless drive to raise cash.
In after-hours trading the market bid up the stock more than 3.5% over its closing price of $24.62, in response to the filing, even though Carl Icahn became the largest shareholder in Seventy Seven Energy Inc (NYSE:SSE) only by virtue of his holdings in Chesapeake Energy Corporation (NYSE:CHK) – Chesapeake shareholders received one share in SSE for 14 shares they held in CHK.
Stock performance of SSE
The stock commenced trading on a ‘when-issued’ basis on June 17 and on ‘regular-way’ basis from July 1.
Though Carl Icahn held 10% as on June 30, there is no way to tell as of now whether he continues to hold it once the company distributed the shares and they entered regular trading on July 1.
At yesterday’s closing price, Seventy Seven Energy Inc (NYSE:SSE) has a market cap of $1.2B – puny by Carl Icahn’s lofty deal standards.
More on SSE
According to the company’s Spinoff Roadshow document, it owned 83 drilling rigs and stood fifth in the US land-based drilling business rankings.
It operates in the major US producing basins and has 5100 employees. 16 new rigs are to be delivered in 2015, while nascent pressure pumping business operates 360,000 hp with another 40,000 hp to come online by 2014.
As per the Roadshow document, the company enjoys attractive US industry dynamics, and has a large integrated footprint in high activity basins and is located closely to its customers. Led by an experienced management team, the company offers a full range of services driven by a high-quality asset base.
It currently derives the bulk of its revenues from business with Chesapeake Energy Corporation (NYSE:CHK), but is planning to change that to a 50:50 mix in the long term.
Details of the historical business performance of the company, as per the roadshow, reveal that revenues will be nearly flat between 2012 and 2014E.
The company’s capitalization structure reveals assumption of higher debt (nearly 40%) after the spinoff.
Will Carl Icahn remain invested in SSE?
Given Seventy Seven Energy Inc (NYSE:SSE)’s relatively small size, larger debt obligations, dependence for revenues on erstwhile parent CHK, and flat sales trends, it is difficult to imagine any overwhelming rationale for Carl Icahn to hold on to this investment.