Carl Icahn Takes Stake in SandRidge Energy

Activist investor opposes proposed Bonanza Creek acquisition

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Nov 27, 2017
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Icahn Enterprises leader Carl Icahn (Trades, Portfolio) disclosed he established a 13.5% stake in SandRidge Energy Inc. (SD, Financial) on Nov. 15, becoming its largest shareholder.

The activist investor purchased over 4.8 million shares of the Oklahoma City-based oil and gas producer for an average price of $16 per share, giving it 0.36% portfolio space.

According to filings, Icahn began buying shares in October. He added to his position after the company announced Nov. 15 it is planning to buy Denver-based Bonanza Creek Energy Inc. (BCEI, Financial) in a $746 million cash and stock deal.

CEO James Bennett said the deal “greatly enhances [the] existing portfolio.”

“Overall, we believe this will drive strong risk-adjusted returns in both areas," he said. "Likewise, SandRidge will benefit from the greatly increased scale and substantial cost and operational synergies as a result of the transaction. Lastly, the acquisition will be accretive to cash flow per share and will enhance our ability over time to increase cash flow generation of the business.”

While the company believes the deal will be beneficial, Icahn called it “nonsensical” and plans to vote against it. Another major shareholder, Fir Tree Partners, is also opposed to the deal, citing the price is too high. In addition, the company emerged from bankruptcy in October 2016. Likewise, Bonanza Creek emerged in April after cleaning up approximately $1.4 billion in debt.

On Nov. 27, SandRidge’s board of directors announced the adoption of a short-term shareholder rights plan, or poison pill, to prevent Icahn or others from increasing their holdings further and to protect the proposed deal.

SandRidge has a market cap of $666.59 million; its shares were trading around $18.69 on Monday with a forward price-earnings (P/E) ratio of 81.97, a price-book (P/B) ratio of 0.78 and a price-sales (P/S) ratio of 1.37.

According to the Peter Lynch chart below, the stock is trading above its fair value.

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GuruFocus estimates the stock has lost 20% year to date.

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Energy stocks compose 15.9% of Icahn’s portfolio of 16 positions. Other gurus invested in SandRidge include John Paulson (Trades, Portfolio), Francis Chou (Trades, Portfolio), Howard Marks (Trades, Portfolio), Arnold Schneider (Trades, Portfolio) and Murray Stahl (Trades, Portfolio).

Disclosure: I do not own any stocks mentioned.