The CVR Energy Inc. board of directors agreed last week with investor Carl Icahn to remove its poison pill and allow Icahn to proceed with his attempt to buy up majority interest in CVR for $30 per share with a contingency cash payment (CCP). While the board is still not recommending that shareholders tender into Icahn’s offer, it is allowing them to do so, and for Icahn to take majority control should he acquire an additional 36 percent on top of his existing 15 percent. Icahn will be extending his offer by 10 business days as a result.
The board said that while it believes it is still the best alternative for shareholders, based on Icahn’s success in winning over shareholders in the April 2 tender offer, it realizes that many shareholders may prefer to realize value in the near-term, rather than long-term.
Icahn says if he does not get 51 percent, he will drop his proxy fight and move on. However, if he does win majority control, he will close on the offer and shareholders will receive their money. Seven of CVR’s nine directors would also be replaced from Icahn’s nominees. He would then allow remaining shareholders the opportunity to tender by extending the offer another 10 days. If Icahn achieves up to 90 percent ownership, he will effectuate a short-term merger, in which all remaining shareholders will receive the $30 per share and CCP.
After consummation of the offer, Icahn says he will cause CVR to engage one or more independent, nationally-recognized investment banking firms to conduct a 60-day sales process to encourage acquisition proposals from third parties. He said he would support any bona fide, all-cash offer received within this 60-day marketing period that results in all stockholders receiving a net amount of at least $35 per share. He said he may vote for lower bids, but will not be obligated to do so.
Icahn said he agrees with the current board that CVR’s long-term value exceeds $30 per share. However, he also said he believes that if the company cannot be sold in the next two months there are major risks to earnings in the short and intermediate-term, as he believes refinery crack spreads will continue to narrow.
The CVR board said that during Icahn’s tender offer period, it will be permitted to seek alternative acquisition proposals, but will not be permitted to terminate the agreement with Icahn. The board said the deal with Icahn includes several protections for shareholders that were not in place beforehand, with fewer conditions and more assurances for shareholders who do not initially tender into the offer.
In the meantime, CVR, which in addition to the refinery business is the 70 percent stakeholder in nitrogen producer CVR Partners LP, released preliminary results for the first quarter ending March 31, 2012. Preliminary estimated sales for the quarter were $1.8-$2.1 billion, compared to $1.167 billion for the year-ago quarter. Preliminary estimated operating income was between $140-$150 million, compared to the year-ago $109.6 million. CVR said results for the quarter were impacted by several factors, including increases in crack spreads and beneficially wider crude oil differentials, a shorter-than-planned turnaround at the Coffeyville refinery, and strong operating results from the Wynnewood refinery for the first full quarter of operations as part of CVR Energy.