Carl Icahn is trying to make massive changes to the board of CVR Energy, Inc. (NYSE:CVI), in hopes of selling the company. CVR last week came out with a statement telling investors to ignore Icahn’s offer. Since than, Icahn has yet to say anything. However, the CEO, Jack Lipinski, came out with another letter to shareholders today, urging them to ignore Icahn’s offer which expires on April 2nd.
Icahn is the largest shareholder of the company, with a 15% stake. He promised to drop his bid if he cannot if he cannot get 51% of shareholders to side with him.
Icahn has been trying to get the company to sell itself, and believes CVR is trading at a discount to its true intrinsic value. Icahn’s view is that a US refiner like CVR with high profit margins, should be trading at a much higher valuation. CVR energy is trading at $25.94, Icahn offered to buy the company for $30 a share, although he admits that it will be hard to sell.
Below is the full statement from the CEO to investors:
As you are likely aware, Carl Icahn has launched a tender offer to acquire CVR Energy at a price that your Board believes substantially undervalues the company. Mr. Icahn is also waging a proxy contest to replace your entire Board with a slate of nominees who are largely his current and former employees and who have little or no experience in the petroleum or fertilizer industries. He has also issued a series of press releases attacking the Board and management of CVR Energy.
We believe CVR Energy stockholders should know the facts regarding the actions your Board and management team have taken and the milestones achieved. By executing on our strategic plan, we believe that your team will deliver greater value for stockholders than Mr. Icahn’s offer, over both the near and long term.
Mr. Icahn’s offer is set to expire on April 2, 2012. Mr. Icahn has stated that he will abandon the offer and his proxy fight if fewer than 36 percent of the company’s shares, other than the shares he already owns, are tendered into the offer by his publicly announced “deadline.” We urge our stockholders not to tender into the Icahn offer and to end his distracting and detrimental campaign.
MR. ICAHN’S OFFER SUBSTANTIALLY UNDERVALUES CVR ENERGY
CVR Energy has an undisputed track record of delivering value to stockholders. CVR Energy, led by its current Board and management team, has delivered superior results to our stockholders over almost any time period you examine since the company went public in 2007, far outperforming all of our peers as well as the leading indices:
|Rank Among Peers||S&P 500|
|Since CVI IPO||41||%||– 44||%||#1||– 7||%|
|Last 3 Years||436||%||67||%||#1||70||%|
|Last 1 Year||30||%||14||%||#1||8||%|
Note: Market data as of March 23, 2012. IPO performance based on period from October 22, 2007 to March 23, 2012. CVI initial value based on IPO price of $19.00 per share. Peers are ALJ, DK, HFC, TSO and WNR.
We believe that we have been able to deliver these strong results through careful planning, the leadership of an experienced management team and a singular focus on capitalizing on opportunities to deliver stockholder value. Our investments and improvements in our Coffeyville plant enabled us to expand our operations as the NYMEX 2-1-1 crack spreads widened, helping us to achieve record results in 2011. In addition, our team has executed a number of important transactions to enhance stockholder returns, including: the successful initial public offering of CVR Partners in April 2011; the accretive acquisition of Gary-Williams Energy Corporation in December 2011, which added additional scale and diversity to our asset base; and, most recently, our announcement of the initiation of regular quarterly dividends and a meaningful special dividend funded through the proposed sale of a portion of our CVR Partners units.
The Board of Directors and management of CVR Energy have a plan for continued growth. We have taken a number of steps designed to enable us to continue to deliver superior financial returns to our stockholders – in excess of the Icahn offer – as well as develop new opportunities. Our plan for delivering value to our stockholders includes:
Increasing cash flow by delivering on the synergies and other benefits from the recently completed acquisition of the Wynnewood refinery – the synergies are already on track to be significantly greater than originally expected. For example, we have been able to leverage our aggressively-managed crude oil procurement effort along with our growing crude oil gathering and logistics business to reduce the cost of crude oil to supply the Wynnewood refinery.
Capitalizing on the increasing production of North American crude oil coming from Canada, the Rockies and the mid-continent regions of the United States. Given the location of our refineries and our steadily growing crude oil gathering and logistics business, we expect this relatively recent change in the supply environment to continue and to allow the company to achieve superior margins and industry-leading returns well into the foreseeable future.
Expanding the company’s crude oil gathering and logistics business which allows for increased operating income via higher refining margins, provides operating flexibility and builds a platform for a potential future gathering and logistics MLP.
Continuing our track record of operational excellence. Our technically driven organization’s constant focus on disciplined project management and strict safety and environmental standards has allowed the company to maximize operating performance. For example, our recent Coffeyville turnaround was completed ahead of schedule and under budget. The plant is operating at full capacity and taking advantage of continued excellent crack spreads and Brent-WTI differentials.
Returning capital to stockholders through the initiation of regular quarterly cash dividends of $0.08 per share and by completing the sale of a portion of the CVR Partners common units owned by the company to fund a meaningful special dividend.
Taking advantage of future opportunities to deploy the company’s increasingly strong cash flow and asset base to seek to return additional capital to stockholders by any appropriate means.
MR. ICAHN’S TENDER OFFER AND PROXY FIGHT
In his recent press releases, Mr. Icahn tried to take credit for CVR Energy’s stock price performance, despite the fact that our stock price had outperformed our peers well before he began his detrimental campaign. We believe that our team’s longstanding track record of delivering results speaks for itself, and we have a strategic plan to continue to deliver superior stockholder value. On the day prior to Mr. Icahn’s announced intent to initiate an unsolicited tender offer to acquire all of our outstanding shares, research analysts’ price targets were in a range of $30 to $35. Note that Mr. Icahn’s offer is at the very bottom of this range and that these price targets did not reflect ANY “control premium.” In addition, our stock price increased 41.4% for the year ended January 12, 2012 (the date Mr. Icahn disclosed his position), as compared to a 36.1% increase in the peer median and a 0.7% increase in the S&P 500 for the same period.
Moreover, at least one Wall Street analyst has stated that Mr. Icahn’s tender offer has actually served as a negative overhang on our stock and a reason to downgrade our stock,1 a view which is consistent with our belief that Mr. Icahn’s actions have not been beneficial for stockholders.
In addition to the inadequate offer price, there are many other reasons for CVR Energy stockholders to reject Mr. Icahn’s tender:
The offer does not provide common structural protections for CVR Energy stockholders that do not tender. Stockholders face the threat that if they do not tender into the offer, and the offer is subsequently consummated, they will find themselves as minority stockholders in a company with a new majority stockholder and an entirely new Board controlled by Mr. Icahn. Further, Mr. Icahn has stated that if the offer is completed, the company may be delisted from the New York Stock Exchange and the remaining outstanding shares deregistered, meaning that the company may stop all public reporting.
Tender offer uncertainties front and center, downgrade to Neutral – Macquarie Equities Research, March 7, 2012. Permission to cite this report was neither sought nor given.
The Contingent Cash Payment Rights (CCPs) are unlikely to deliver any incremental value to CVR Energy’s stockholders. Mr. Icahn’s CCP pays out only if (1) Mr. Icahn completes his tender offer (which requires that he obtain complete control of the CVR Energy board), (2) a definitive agreement to sell the Company is executed within 15 months after doing so and (3) such sale transaction closes for a price (less fees and expenses) in excess of $30 per share. Mr. Icahn has acknowledged that he has been unsuccessful in finding a buyer, but he expects stockholders to believe that the results will somehow be different if CVR Energy stockholders give him control of the company. He also wants CVR Energy stockholders to believe that he will seek to enter into a definitive agreement to sell the company during that 15-month period even though (a) he would receive all the upside of a sale himself if he waits to execute such agreement until one day after the fifteen-month period and (b) he is careful to say in his tender offer documentation that he has no fiduciary duty to holders of the CCPs and makes no commitment whatsoever to undertake any efforts to enter into a definitive agreement to sell the company within 15 months.
The offer is replete with conditions. The offer is subject to 16 separate conditions, a number of which are subject to Mr. Icahn’s discretion, and some of which Mr. Icahn has not even attempted to satisfy. As of the date of this letter, Mr. Icahn has not even made the filing required to obtain the regulatory approval necessary to complete his offer.
Because of the terms of his offer, Mr. Icahn cannot actually buy your shares on or about April 2, 2012. One of Mr. Icahn’s many conditions is that his entire slate of director nominees is elected to CVR Energy’s Board at the 2012 annual meeting. CVR Energy’s annual meeting is typically held during May (the date for the 2012 annual meeting has not yet been announced). Therefore, stockholders have no reason at all to tender their shares on April 2.
Mr. Icahn has offered CVR Energy stockholders a way to end his distracting and detrimental campaign. Mr. Icahn stated that if he did not receive enough shares tendered by April 2nd, he would withdraw his offer and proxy fight. Your board encourages you NOT to tender your shares and deliver a decisive message to Mr. Icahn.
YOUR BOARD OF DIRECTORS STRONGLY RECOMMENDS THAT YOU REJECT ICAHN’S OFFER AND NOT TENDER YOUR SHARES.
Our team says what it will do, and does what it says. From the day we acquired our assets in June 2005 to today, our track record of delivering value to our stockholders speaks for itself. We will continue to work hard for you to take advantage of CVR Energy’s many opportunities to deliver superior stockholder value.
Thank you for your support.
On behalf of CVR Energy’s Board of Directors
|Chairman and Chief Executive Officer|
|CVR Energy, Inc.|