Hawkins Fought to Stop Chesapeake Energy’s McClendon Spending Spree

Hawkins Fought to Stop Chesapeake Energy's McClendon Spending Spree

Southeastern Asset Management, one of the largest shareholders of Chesapeake Energy Corporation (NYSE:CHK) revealed that it fought against the Founder Well Participation Program (FWPP), a perk given to Aubrey McClendon allowing him to purchase 2.5 percent of the wells drilled by the natural gas producer.

In a letter to shareholders, Mason Hawkins, Chief Executive Officer of Southeastern recognized McClendon’s accomplishments in building a portfolio of some of the best oil and gas acreage in the United States with attractive prices. Hawkins said that prior to the Chesapeake controversy, Southeastern evaluated if Chesapeake meets its “good people” criteria particularly during the beginning of their investment. He said that the company practiced more due diligence than normal and found that the image portrayed by the natural gas producer and the media regarding McClendon is different.

David Einhorn Buys Three New Stocks: These Are The Names And Theses (Q3 Letter)

david einhorn, reading, valuewalk, internet, investment research, Greenlight Capital, hedge funds, Greenlight Masters, famous hedge fund owners, big value investors, websites, books, reading financials, investment analysis, shortselling, investment conferences, shorting, short biasDavid Einhorn's Greenlight Capital funds returned 5.9% in the third quarter of 2020, compared to a gain of 8.9% for the S&P 500 in the same period. This year has been particularly challenging for value investors. Growth stocks have surged as value has struggled. For Greenlight, one of Wall Street's most established value-focused investment funds, Read More

Hawkins explained that the company weighed the positive and negative aspects of its investments and fought hard behind the scenes to end the controversial FWPP before it was disclosed to the media.

He also told shareholders that the company together with investor activist Carl Icahn pressured Chesapeake’s board members and McClendon to focus on important issues such as de-risking the balance sheet, manage costs, cut discretionary spending, and to concentrate on its operations. Hawkins cited that their initiative resulted to governance changes within Chesapeake. McClendon stepped down as Chairman of Chesapeake and agreed to end his FWPP 18 months earlier. In addition, the benefits and compensation of the members of the board was reduced and replaced four of its members.

Archie Dunham took over the non-executive chairman position vacated by McClendon while the four new members of the board include Bob Alexander, Brad Martin, Fredrick Poses and Vincent Intrieri.  Three of the new members of the board represents Southeastern and the other member represent Carl Icahn. According to Hawkins, after the audit committee investigation another director will be replaced.

Hawkins described the new Chesapeake Energy Corporation (NYSE:CHK) board of directors as “one of the best and most vested independent” boards. He is confident the new board will make decisions in the best interest of its owners.

For the last four months, Chesapeake Energy Corporation (NYSE:CHK) was surrounded by controversies and investigations. Its market value declined by $7 billion for the past year. The company is also confronted with an estimated $18.6 billion cash shortage.

Southeastern owns a 13.9 percent stake in Chesapeake Energy Corporation (NYSE:CHK) while Icahn owns 7.6 percent in the company.