Contura Pushed by MG Capital to Replace Half of Board

(Bloomberg) -- Activist investor MG Capital Management Ltd. is calling on Contura Energy Inc. to replace lead director John Lushefski and two other directors in an effort to improve the company’s performance and accelerate its exit from thermal coal.

The New York-based investment firm, which said it owns a 5.8% stake in the coal producer, argued in a letter to the board Wednesday that the current directors have overseen hundreds of millions of dollars in value destruction in the past two years. MG Capital contends Contura’s board should replace half of its six members, saying that it’s prepared to nominate directors at the company’s 2021 general meeting if that doesn’t happen.

MG Capital said the changes were needed to support Chairman and Chief Executive Officer David Stetson, who took over last year, and his efforts to cut costs, pay down debt and speed the transition away from thermal coal.

“Mr. Stetson and the high-quality executives that he has recruited deserve to be supported by a refreshed board that possesses complementary skill sets, diverse viewpoints and meaningful ownership perspectives,” MG Capital managing member Michael Gorzynski said in the letter, a copy of which was reviewed by Bloomberg.

In addition to Lushefski, legacy directors Daniel Geiger and Albert Ferrara Jr. should also be replaced because they lack the necessary expertise to support the turnaround, Gorzynski wrote.

A representative for Contura, based in Bristol, Tennessee, wasn’t immediately available for comment.

Share Drop

Contura’s shares had about fallen 67% in the past year through Tuesday’s close. The company’s shares fell 1.1% to $7.80 a share as of 9:36 a.m. Wednesday in New York, giving the company a market value of $143 million. In June, the company said it planned to idle one of its mines and sell another as demand for coal continued to decline. The move underscored a broader struggle in the U.S. coal industry as utilities move to cheaper, cleaner alternatives.

The coronavirus pandemic has increased that pressure by depressing both power consumption and steel production. Contura is the largest U.S. producer of coking coal, which is used to make steel.

Gorzynski said the company’s directors enjoy hefty compensation while presiding over hundreds of million of dollars in lost value and job losses.

“The new management team and long-suffering stockholders should not have to be shackled to ineffective legacy directors with a history of reaping outsized compensation for overseeing massive value destruction,” he said.

MG Capital was founded in 2011 by Gorzynski, a former executive at Dan Loeb’s Third Point. In May, the firm reached a settlement with Philip Falcone’s HC2 Holdings Inc. that saw four new directors appointed the its board, including Gorzynski.

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