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Activist Investor Carl Icahn Bought Into Chesapeake Energy
Posted by: GuruFocus (IP Logged)
Date: May 25, 2012 05:42PM

Activist billionaire investor Carl Icahn just reported that his funds have bought an aggregate amount of 50 million shares of Chesapeake Energy (CHK), which is about 7.56% of total shares outstanding. Carl Icahn started to buy the shares on April 19 at $18 a share and has added to the positions as the stock prices collapsed to around $14. His last purchase was on yesterday, May 24. His average cost is about $15.7 a share. Today Chesapeake stock closed at $15.99.

Chesapeake has attracted a lot of attention lately as investors questioned the interest and compensation of its CEO Aubrey McClendon. The company announced the day before yesterday that it has implemented significant changes to the compensation of its CEO and the board of directors, which includes reducing the annual compensation of directors by 20% and reducing the CEO total compensation for 2011 by 15%. The company stock has lost close to 30% year to date. Since its peak in 2008, the stock has lost close to 80%.

Chesapeake CEO Aubrey McClendon is certainly a capable CEO. He founded the company with only $50,000 initial investment in 1989 and aggressively grew it into a natural gas giant with more than 11 billion in annual revenue and $41 billion in assets. At the peak of 2008, the company had a market cap of more than $40 billion.

McClendon’s aggressiveness certainly helped him build the company. But he was also burnt badly by it. From March 2007 to July 2008, he continued to buy Chesapeake stocks in his own account as the stock prices runs up from $30s to $50s, on margin! By October 2008, he has accumulated more than 32 million shares, which was valued at more than $2 billion at the peak of the stock price. Then the stock market collapsed and he got a margin call and has to sell almost all of the stocks at an average of $18 a share.

You can find his trade history here.

It is no doubt Mr. McClendon is capable CEO, as also pointed by T. Boone Pickens. But is he a good asset allocator?

Carl Icahn is certainly not your average investor. Now he has invested hundreds of millions in the company. He has certainly seen the value here and he will force more changes. Will you follow Mr. Icahn into Chesapeake? Do you have enough confidence in its CEO?

Disclosure: The author does not own CHK and has no intention of buying it.

Guru Discussed: Carl Icahn: Current Portfolio, Stock Picks
Stocks Discussed: CHK, IEP,
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