After experiencing a roller-coaster of a year in 2012, jam-packed with investigations, falling market value, public scrutiny and company shareholders demanding his ouster, Chesapeake CEO Aubrey McClendon has announced his decision to resign, sending Chesapeake (NYSE:CHK)’s stock to surge about 11 percent yesterday after the news broke.
It seems like Chesapeake is well on its way to recovery, with McClendon’s resignation knocking off the first step, taking effect in the beginning of April. Since 2013 started, its stock has risen from $16 to its price today of $20.05.
Reading the press release announcing the news, Chesapeake board chairman, Archie Dunham, classically set up a hopeful message that brushed off McClendon’s alleged past mismanagement:
“Chesapeake is at an important transition in history,” he said. “And Aubrey and the board of directors have agreed that the time has come to select a new leader. The board will be working collaboratively with Aubrey to make a smooth transition to Chesapeake’s next CEO.”
Gaining Back Value
CHK data by GuruFocus.comIn the past year, Chesapeake has lost 14 percent of its market value, only a portion of the amount it lost in the last five years, declining almost 50 percent within the latter time frame.
There is no question that the company’s position in the market is a major focus for the company’s execs.
One of the company’s largest stakeholders, activist Guru Carl Icahn, has repeatedly voiced his wrath in the past about Chesapeake’s then-board members prodding the company’s “value destruction.”
Seeing immediate improvement as soon as new members were elected to Chesapeake’s board, it drove shareholders to crave continuation of the trend.
Southeastern Asset Management, company of Guru Mason Hawkins, and 13.5 percent owner of Chesapeake’s outstanding shares, expressed this sentiment in its third quarter letter:
“Chesapeake gained 2% in the quarter and rose 39% from its low point in May. The substantial governance changes we discussed in last quarter’s report not only lifted the stock, but also improved the prospects for more conservative capital allocation going forward.”
With McClendon stepping down, Dunham noted he, along with the rest in control, will strive to strengthen Chesapeake’s balance sheet.
“Capital allocation and operating decisions will be made with the goal of prudently growing the company’s intrinsic value per share for the long-term benefit of shareholders,” he said.
In the last 12 months, Chesapeake’s EBITDA growth rate has dropped 78 percent, despite its 4.6 percent positive revenue growth rate in its 10-year financials.
Chesapeake is scheduled to release its earnings announcement on Feb. 21.
Pride in Chesapeake
McClendon’s 24 years with the company as founder and CEO, has garnered him respect from shareholders.
“Aubrey has every right to be proud of the company he has built, the world class team of people at Chesapeake and the collection of assets he has assembled, which in my opinion, are the best portfolio of energy assets in the country,” Icahn said.
After multiple allegations brought against McClendon about basically taking advantage of company assets for his personal use, leading to the SEC, IRS and the Justice department’s investigations, the board finally revealed in the same letter announcing McClendon’s resignation that there was no improper conduct by McClendon.
Moreover, his resignation, the release stated, was due to what he felt were “philosophical differences with [Chesapeake’s] new board,” whatever they may be.
McClendon has been an avid buyer of his company’s shares regardless of its dwindling market value. (You can view his trade history at McClendon’s Market Overview.)
GuruFocus ranks Chesapeake 1 star in Business Predictability, 5 in Financial Strength and 6 in Profitability and Growth.
View the stock’s warning signs, historical price and P/E ranges in Chesapeake’s Analysis Page.
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