CVR Energy Inc.’s board of directors on March 1 said that after consultation with its independent financial and legal advisors, it has unanimously determined that the unsolicited tender offer by entities controlled by Carl Icahn (GM Feb. 27, p. 8; GM Feb. 20, p. 1) to acquire all of the outstanding shares of CVR Energy for $30.00 per share in cash (subject to downward adjustment), plus a “contingent cash payment right,” is inadequate and not in the best interests of its stockholders.
In reaching its decision, the board said it determined that the offer substantially undervalues the company and the significant growth opportunities inherent in its current plan, particularly given its proven track record of delivering value to its stockholders, including producing 65 percent in total returns for CVR stockholders over the last year. It said the Icahn offer also contains an extraordinarily long list of conditions that provide Icahn with maximum flexibility to avoid closing the offer. The board said it also completely fails to protect minority stockholders who choose not to tender into the Icahn offer; makes no provision for the $670 million in indebtedness that would be triggered if Icahn prevails in his offer or his announced proxy contest; and contains a contingent cash payment right that is unlikely to provide stockholders with any additional value. Accordingly, the board strongly recommends that CVR Energy shareholders reject the Icahn offer and not tender any shares into the offer.
“We believe the Icahn offer is an opportunistic attempt by Mr. Icahn to acquire CVR Energy at an inadequate price and at a time when we are about to reap the benefits of our recent acquisition and our valuable position as a leading mid-continent refiner,” said CVR Chairman and CEO Jack Lipinski in a letter to shareholders. He called the offer paltry, and reiterated that CVR stockholders have realized total returns of 527 percent over the past three years and 65 percent over the past year, significantly outperforming its peers and the S&P 500. He noted that the offered price of $30 per share was only 3.9 percent above the company’s highest close in the prior six months, and that it is at the low end of the $30-$35 per share price targets given by Wall Street analysts for the company as of Feb. 15, 2012.
Lipinski also noted that the contingent cash payment promised by Icahn is only effective if there is a sale of the company within nine months, and that Icahn would be incentivized to prolong the date of the sale as a result.
Icahn argues that CVR Energy should be sold, and has listed a number of competitors that might be interested should the company officially be put up for sale.
Earlier in the week, CVR Energy reported net income attributable to shareholders of $345.8 million ($3.94 per diluted share) for the year ending Dec. 31, 2011, compared to the prior year’s income of $14.3 million. Net sales were up by almost $1 billion, to $5.03 billion from $4.08 billion.
“CVR Energy turned in an exceptional financial performance for 2011, far eclipsing the results of any previous year,” said CEO Jack Lipinski. “The favorable crack spread coupled with our Midcontinent location allowed us to take advantage of the cost differential between Brent and West Texas Intermediate crudes. These results were achieved despite the expense and lost production from our planned turnaround at the refinery in Coffeyville during the fourth quarter.”
“2011 was a watershed year for us in many ways,” said Lipinski. “We completed an initial public offering in our nitrogen fertilizer business, placing it in a publicly traded master limited partnership that provided a way to recognize the value of that business. We also completed acquisition of Gary-Williams Energy, adding a 70,000 bpd refinery at Wynn