Tom Ward founded SandRidge Energy (SD) in 2006. The company started trading publicly at $35 in 2007 after six years of operations is now trading for $5 per share.
That is a pretty ugly result for anyone who invested alongside Ward at the inception of the company. A $10,000 investment in Sandridge is now worth $1,428.
Despite the abysmal share price performance, Ward was a favorite CEO of the acclaimed value investor Prem Watsa of Fairfax Financial (FFH). Fairfax owns more than 10% of SandRidge.
Earlier this year Watsa said that he thinks SandRidge's Tom Ward is one of the best operators in the business and that he thinks the company Ward has built (SandRidge) is poised to do well in the long term.
Watsa apparently invested in SandRidge specifically because of Ward's skills as a manager; here is what Watsa said in Fairfax's 2011 letter to shareholders about Ward:
One more story about an extraordinary entrepreneur that Sam Mitchell identified for us: Tom Ward. In 2008, in an extraordinary move, Tom decided that because of the huge discoveries of shale gas, he would hedge all of SandRidge's natural gas at over $8/mcf through 2010 and would shift to oil by making two oil company acquisitions. Today, SandRidge Energy is predominantly an oil producer with natural gas production capability when the price of natural gas rises. More recently, Tom made another very accretive offshore oil acquisition at a very good price and immediately financed it. We have a total investment of $329 million in SandRidge, including just under $300 million in convertible preferreds. We particularly like the fact that Tom has hedged most of SandRidge's oil production for the next three to four years at about $100 per barrel. I don't think there is any other company in the oil and gas industry that has done that. We are very excited to be Tom's partner.
You have to wonder what Watsa is thinking now as Sandridge announced that Ward’s time at SandRidge is done:
The Board's decision to replace Ward reflects its judgment that, despite Ward's many contributions to SandRidge, new leadership is in the best interests of the company and its shareholders at this time. "On behalf of the Board, I want to express our appreciation of Tom's leadership and vision, which led to the founding and growth of SandRidge," Serota said.
I suppose that given the 85% decline over six years in SandRidge’s stock price, and the controversy over Ward’s lucrative pay packages plus “other” issues this termination should not be a surprise.
What might be a surprise is the parting gift that Ward will receive from the company:
The termination of Ward's employment, which reflects the Board's decision that new leadership is desirable at this time, will accordingly be "without cause" under the terms of his employment agreement. He will receive the severance package provided for under the terms of his employment agreement, which consists of: the vesting of 6,331,475 shares of previously granted restricted stock; a lump sum cash payment of $53.5 million, comprised of three times the average of his last three annual bonuses, his accrued vacation, and the value of the restricted stock that Ward would have received over the next three years if his employment with the company had continued; and his current base salary to be paid for a period of 36 months.
In total that termination package will result in Ward receiving an impossible-to-believe $90 million.
That $90 million is in addition to the massive amount of money Ward pulled out of SandRidge over its six-year history as detailed in TPG’s letter to SandRidge shareholders from late last year:
One fact summarizes the appalling corporate governance practices of SandRidge - despite the single worst stock performance of any energy company, and among the worst stock performances in the entire US market, and massive discounts applied to the company because of management…payments to Mr. Ward from the company have totaled approximately $150 million over the past five years (astonishing, given the $3 billion market capitalization of the company).
Talk about a complete misalignment of executive compensation with shareholder best interests. This is the opposite of pay for performance.
SandRidge shares are down 85% over Ward’s term as CEO. Over that same time period he will have received $240 million in compensation.
It will be interesting to see if Prem and Fairfax continue to hold onto their shares now that the “extraordinary entrepreneur” Tom Ward is gone.
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