SandRidge Energy Inc. (SD:US), the energy producer that’s lost 28 percent of its value this year, should allow its shareholders to vote on replacing the company’s directors, clearing the way for the company to be sold, said hedge fund manager Dinakar Singh.
Singh, whose TPG-Axon Management LP increased its stake in SandRidge to 6.5 percent from 6.2 percent on Nov. 13, asked the board to set a date for a shareholder vote to remove directors. He wants rule changes that would allow the directors to be replaced at once and removed without cause, he said today in a letter to the board.
TPG-Axon and Mount Kellett Capital Management LP, which owns 4.5 percent of SandRidge, have called for the company to put itself up for sale, fire Chief Executive Officer Tom Ward and add outside directors. The stock has declined (SD:US) 78 percent from its IPO value in November 2007, according to data compiled by Bloomberg.
“An outright sale of the company is the most realistic path to restoring the shareholder value that has been destroyed,” Singh wrote.
Greg Dewey, a spokesman for Oklahoma City-based SandRidge, said the company is reviewing the letter.
A formal vote request is likely to increase communication between SandRidge and its shareholders and “air out” the issues that the company can address, Duane Grubert, an analyst at Susquehanna Financial Group in Stamford, Connecticut, said in an interview.
“Otherwise, you have very private pro-and-con discussion going on behind the scenes,” said Grubert, who rates SandRidge’s shares the equivalent of a buy and doesn’t own any.
SandRidge began as a gas producer and switched to exploring for oil when natural gas prices fell in 2008. The company said Nov. 8 it would sell its Permian Basin property in Texas to raise money to drill its 1.8 million acres in the Mississippian Lime field in Oklahoma and Kansas.
The company “bet the ranch,” by acquiring far more acreage than it can realistically develop, Singh said. “As a result, funding has become a constant drama in recent quarters.”
SandRidge is burdened by high overhead costs and overpays Ward, Singh wrote. SandRidge paid Ward $67.3 million in 2008 to compensate him for personal investments he made in the company’s gas wells, according to company filings.
A third shareholder, Prem Watsa, CEO of Fairfax Financial Holdings Ltd. (FFH), increased his stake in SandRidge to 10.4 percent and praised Ward in a Nov. 19 interview as “one of the best operators in the business.”
SandRidge adopted a shareholder rights plan Nov. 19 that will allow existing shareholders to buy more stock at a discount if an outsider tries to gain control of the company, making a takeover more difficult.
SandRidge rose 3.2 percent to $5.85 at the close in New York.
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