Friday, June 8, 2012

How to Think About Deal Guys: "CVR Energy Shareholders Surprised To Find Carl Icahn Acting Like A Corporate Raider" (CVR; CHK)

There's a reason I mention TWA and tell my homely little anecdotes when writing about Mr. Icahn and his great Chesapeake adventure.
Here's the other deal he's got cooking right now, via DealBreaker:
If you want to buy a company you can do it in one of two ways: you can negotiate a merger with the board, put it to a shareholder vote, and if you get above 50% then all the other shareholders are basically forced into the deal and you pay the merger price. Or you can buy shares, typically in a tender offer, and if you get above 50% then you … sort of own the company. But not exactly, because there are still other people who own 49%. And, generally speaking, those other people don’t like you.

Today some of those other people are suing Carl Icahn because (1) he owns about 80% of independent refiner CVR Energy, (2) they own about 20%, and (3) he is being kind of mean to them. Specifically, after tendering for the company and buying most of the shares at $30, he’s been taking advantage of the fact that no one really wants to be a minority shareholder in a controlled company by buying more shares at around $27.50.*

Some of those minority shareholders want to stop him doing this, claiming that “Once any genuinely independent board of directors learned of Icahn’s scheme, such a board would have adopted a poison pill to stop Icahn from making any more open market purchases unless and until the Board was able to negotiate a cash-out merger that provided the Company’s remaining shareholders with fair value.” And so they’re suing to force Icahn’s board to adopt a poison pill and prevent him from buying at market prices. That is strange:
The plaintiffs are asking for an order to require the board to adopt a poison pill to stop Icahn from acquiring more shares. Now, these days the typical case that shows up in court involves shareholders asking courts to order boards to pull pills so that a takeover can proceed. For the same reason courts are loathe to order boards to drop pills, they are going to be loathe to order boards to adopt pills.
Indeed. The whole deal is good fun; here is some quick background.

1. Icahn started buying shares of CVR Energy, eventually accumulating about 14.5% of the shares.
2. Icahn met with management and suggested that they put the company up for sale. They said no....MUCH MORE