Friday, October 17, 2008

Takeover Fears

What a crazy few weeks this has been. To me, the news is a little better this week, but some of the big gas E&P companies aren't feeling good vibes just yet. As noted earlier, Aubrey McClendon had to sell approximately 94% of his stock to meet margin calls. Additionally, XTO's CEO Bob Simpson had to sell 2.1 million shares (30% of his holdings) and the CFO Lewis Baldwin had to sell 535,700 shares (33% of his holdings) for the same reason.

The news this week is that some of the big Haynesville Play companies are reacting to concerns about being involuntarily bought out by rivals. While some companies have been rumored to be on the market for a long time (i.e. Petrohawk), other companies are vulnerable because of their suddenly very low stock prices. Today, Chesapeake was in the news saying that a buyout is unlikely and yesterday Petrohawk adopted a "Stockholders Rights Plan," which is one way for a company to defend itself against an unwanted corporate takeover.

I believe that market forces are very much aligned against corporate takeovers because of the poor credit market (it's hard to pay cash for a company unless you already have lots of excess cash in the bank) and because many of the would be acquirers have depressed stock prices themselves (making it hard to buy a company for stock). But there are people out there with piles of cash and ready access to bank loans, including private equity companies and some of the larger integrated oil companies, so a takeover bid is not out of the question. It's just that a company like Petrohawk would rather have seen a takeover bid when its stock was trading at $48 than when it is trading at $12.

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