Icahn Hopes to Shake Things up at Transocean, Proposes 3 New Board Members

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March 7, 2013

(Bloomberg) — Billionaire investor Carl Icahn proposed three new Transocean Ltd. board candidates and said he’d push for a higher dividend after the world’s largest rig contractor offered what he termed a “meager” shareholder payout. The company called his plan “overly aggressive.”

Icahn, the largest shareholder in the Vernier, Switzerland- based company, proposed John Lipinski, Jose Maria Alapont and Samuel Merksamer be added to the board. He also will ask investors at the annual meeting on May 17 to vote in favor of a $4-a-share annual dividend, which he first proposed in January, Icahn wrote in a letter to shareholders today.

Transocean said March 4 the board would recommend reinstating its dividend at $2.24 and boosting debt repayment. “A larger dividend would be overly aggressive and detrimental to the company’s long-term performance,” Transocean said in a statement today. The company also defended its 13 board members as having “essential” expertise.

Icahn’s interest in Transocean follows his takeover of oil refiner CVR Energy Inc. last year and pressure at Chesapeake Energy Corp., which resulted in board changes and the resignation of the chief executive officer for the natural gas producer.

Lipinski, the CEO of CVR Energy, initially installed a poison pill to fend off Icahn’s attempt to buy the company. Icahn took over as chairman of the Sugar Land, Texas-based company’s board after the majority of holders sold him their shares. The company announced a $5.50 special dividend on Jan. 24, after putting its refineries into a separately traded master-limited partnership.

Different Strategies

There’s little chance either Icahn or Transocean will change their views as the company’s annual meeting approaches, said Scott Gruber, a New York-based analyst with Sanford C. Bernstein & Co. who rates the shares the equivalent of a buy and owns none.

“Investors have two different capital allocation strategies to decide upon,” he said in a phone interview today.

Transocean “has conducted ill-advised mergers, employed unsuccessful development strategies and squandered the substantial cash flow generated by the business,” Icahn wrote. “Shareholders must replace the directors who have been the architects of this failed strategy, including the chairman.”

Icahn also proposed the elimination of staggered terms on the board, so that all members can be voted on simultaneously, according to his letter. Alapont, one of the other nominees, is the former CEO of auto-parts maker Federal-Mogul Corp., which is majority owned by Icahn. Merksamer is a managing director for Icahn Capital LP.

‘Status Quo’

“The status quo needs to change to prevent continued squandering of shareholder capital,” Merksamer said in a phone interview. “Diverting billions of dollars to pay down debt is the wrong strategy. The company should find other ways to reduce debt instead of using operating cash flow.”

Chairman Michael Talbert, a former CEO of Transocean, has served on the board for 19 years.

Transocean said six of 12 independent directors on the board have been added in the past two years. The company faces uncertainties related to its role in the 2010 U.S. Gulf of Mexico oil spill, a Brazilian oil spill and tax litigation in Norway, it said in today’s statement.

“The board does not intend to take steps that will threaten the company’s long-term performance, operating flexibility and investment grade credit rating,” Transocean said. The owner of the Deepwater Horizon rig that exploded in the Gulf halted its dividend payment last year after paying shareholders $3.16 for 2011.

The $4-per-share proposal may limit the company’s efforts to enter into strategic transactions to improve its fleet, said James West, a New York-based analyst at Barclays Plc who rates the shares at the equivalent of buy and owns none.

“Shaking things up for a company that’s had some problems is probably somewhat of a good thing,” he said in a telephone interview. “Pushing for too much that would impair the company is not.”

– David Wethe, Copyright 2013 Bloomberg.

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