Icahn Begins SandRidge Proxy War Aiming to Stop Takeover

(Bloomberg) -- Activist investor Carl Icahn has opened a proxy fight that aims to stop SandRidge Energy Inc.’s takeover of Bonanza Creek Energy Inc.

In a letter this week, the Oklahoma City-based driller said the Bonanza Creek takeover, initially valued at $750 million, would immediately improve its financial prospects, and called a campaign by Icahn opposing the move "misleading." Icahn filed the proxy Friday calling on stockholders to vote against issuing new shares for the takeover.

SandRidge announced the planned acquisition on Nov. 15. A week later, Icahn, with a 13.5 percent stake in SandRidge, blasted the deal as overpriced. The proxy filing “is confirmation Icahn is not looking for negotiated settlements,” said Timothy Rezvan, managing director of equity research at Mizuho Securities USA. “He’s looking for a full break on the deal."

Icahn on Friday said he hadn’t decided whether to pursue board seats at the company. He was particularly annoyed by the company’s support for a poison pill provision that would limit his ability to oppose the takeover. "The poison pills have run amok,” Icahn said by telephone. “And they’ve made corporate democracy a travesty."

Termination Fee

The push for shareholders to kill the deal before it begins could end up saving SandRidge a heap of cash. If either SandRidge or Bonanza kill the deal because of better targets or offers, one of the drillers could be on the hook for a termination fee of roughly $26 million. But if shareholders vote against the deal, the fee is only $3.7 million, according to a filing.

The matter is likely to go to a shareholder vote as Icahn’s not the only shareholder against the deal. People holding over 25 percent of the company have come out against the takeover, according to Rezvan. That makes it "unlikely that it will go through," he said in a telephone interview.

Icahn Begins SandRidge Proxy War Aiming to Stop Takeover

Icahn already owned shares in the driller before the Bonanza deal was announced, but began buying more shares as it developed, the billionaire investor said. He was happy the company backed down from the provisions in its poison pill in a written agreement earlier this week that will now allow him to discuss his opposition to the deal with other shareholders.

SandRidge’s letter didn’t mention the billionaire activist by name but dismissed much of his critique, saying “a vocal minority of shareholders have attempted to criticize the acquisition by distorting the facts and misleading the investing public. Their assertions are false and reckless."

The deal would net SandRidge 67,000 acres in the Denver-Julesburg Basin in Colorado. The purchase represents a 17.4 percent premium over Bonanza’s closing price the day before the announcement, SandRidge has said.

Cash Flows

In its letter, Sandridge defended the purchase, saying it would boost company cash flows by 15 percent next year and earnings per barrel of oil by 21 percent. The acquisition would give SandRidge ready-to-drill assets to balance a portfolio that now consists of declining wells or land still in the early phases of development, the letter said.

SandRidge didn’t immediately respond to messages seeking comment on Friday.

SandRidge investors still have to approve the deal. A shareholder meeting is expected to be held in the first quarter of 2018. SandRidge rose 1.5 percent to $18.25 in New York at 2:36 p.m. Bonanza fell 0.5 percent to $29.84.

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