Wednesday, April 1, 2015

EXCO Outsources Turnaround

In a somewhat curious arrangement, EXCO Resources announced today that it has entered into a "Services and Investment" agreement with a subsidiary of Bluescape Resources Company, LLC to execute "a disciplined performance improvement plan focused on maximizing value for EXCO's shareholders."

Huh?

Upon closing of the agreement, Bluescape's Executive Chairman will join EXCO's board and become the company's Executive Chairman, and EXCO President and COO Hal Hickey will become EXCO's CEO.  Bluescape will buy $10 million of EXCO's common stock directly from the company and another $40 million in the open market within a year of closing.  Bluescape will be paid an undisclosed monthly fee and have additional incentive fees.  Additionally, it will get up to 80 million warrants for common stock, depending on the recovery of EXCO's stock price.

EXCO has been foundering since late 2013 when CEO and founder Douglas Miller resigned under pressure.  The company hadn't named a replacement CEO, which is not a good sign.  A few years ago, Miller and some board members led a failed buyout of the company, and I have the sense that the board of directors has been a bit of a shambles at times.

But why outsource the company's turnaround?  What are the specifics of a recovery plan?  I'm sure we will find out more in coming days.  It feels like an activist shareholder approach, but it still strikes me as odd.

Dallas-based Bluescape positions itself as a private oil and gas investor and operator, but they strike me as more of an investor.  They seem to have an affinity for distressed situations, and the energy patch is a good place for that these days.  I've said it before, but I still think the EXCO board is positioning the company to flip.  Maybe Bluescape will provide the rudder that the company has lacked in these rough seas of late.

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