The CVR Energy Inc. board of directors and billionaire investor Carl Icahn, who is trying to take over CVR, continued to shoot letters to shareholders last week arguing their cases, leading up to the April 2 expiration of Icahn’s offer.
On March 28, the CVR board issued a letter again saying the Icahn offer of $30 per share with a contingency undervalues the company, and noting that Icahn is hoping to replace the current board with nominees who have little or no experience in the refinery or fertilizer business. The board said it is more qualified and has a plan for continued growth. The board went on to tout its own track record, saying CVR stock has gone up 41 percent since its IPO, versus a drop of 44 percent for its peers and a 7 percent drop for the S&P 500. For the last three years, those percentages were 436 percent, 67 percent, and 70 percent, respectively, and 30 percent, 14 percent, and 8 percent, respectively, for the past year
The board said that just prior to Icahn’s offer analysts’ price targets for CVR stock were $30-$35 per share, with Icahn’s offer at the bottom of this range. It also said that at least one Wall Street analyst (Macquarie Equities Research) saw the Icahn offer as an overhang on the stock and reason to downgrade it to neutral.
Icahn quickly responded. “The investment bankers that CVR hired with your money have put together fancy tables showing how great the current board and management have performed,” said Icahn. “However, no amount of smokescreen can obscure the following facts: CVR went public in an IPO in October 2007 at $19 per share. Under the stewardship of CEO Jack Lipinski, the stock fell to a low of $2.25 per share by October 2008. The day before we filed our Schedule 13D on Jan. 13, 2012, the stock was trading at $22.25, a gain of only $3.25 from the IPO price over 4 years ago. It is only after we announced our stake in the company subsequent tender offer did the stock produce substantial gains over its IPO price.
“The board also continues to tell shareholders that our offer of a minimum of $30 per share, with the possibility of further upside, undervalues the company,” continued Icahn. “However, it is unclear to me how Jack Lipinski, the board’s chairman, is able to say that with a straight face while at the same time he has been selling his own shares at prices as low as $25.50 per share!”
It appears that should Icahn take control of CVR, the company will shed all of its fertilizer business, not just additional shares as is planned by the current board. Icahn called the current plan to sell a portion of the shares in the fertilizer unit, CVR Partners LP, a “de facto poison pill.” “I ask fellow shareholders this simple question: do we really want to continue with ‘business as usual’ and risk having the company making another expensive and ill-advised acquisition like Wynnewood or would be rather have the company sell ALL of the fertilizer business and return ALL (not a mere portion) of the proceeds to shareholders? I believe the answer is obvious.”
Icahn believes CVR Energy is too small an operation to stand alone and would find a better home with a larger refiner, one that he hopes to sell to once he takes control.
On March 29, Icahn issued another letter saying CVR shareholders have been confused by the rhetoric disseminated by the CVR board regarding the offer, and he reiterated his position. If Icahn receives at least 36 percent of the outstanding shares by 5:00 p.m. New York City time on April 2, giving Icahn 51 percent, he is committed to having a proxy fight at the upcoming CVR annual meeting, presumably in May. Once it wins the proxy fight, it will replace the current CVR board and remove the poison pill. Once removed, Icahn will accept all tendered shares for payment and will be irrevocabl