Consol Energy Inc.’s stock price rose for the first time in a week after an activist investment firm that owns 21.1 percent of the company said it would push the company to extract more value from its gas division.
Southeastern Asset Management, a Tennessee-based investment management firm, disclosed its intent in a Securities and Exchange Commission filing on Monday afternoon, hours after Consol, in a prelude to its July 28 earnings release, warned investors to expect a loss and saw its stock fall to the mid-$15-range in midday trading. Consol shares closed at $16.66 on Monday and $17.55 Tuesday.
Southeastern hunts for “deeply discounted investments selling for 60 percent or less of our appraisal value,” the company says in its investment philosophy on its website.
It has been a rough couple of months for Consol. The company’s thermal coal master limited partnership went public in a market with no appetite for coal, with expectations trimmed twice before it started trading.
Earlier this month, Consol laid off 470 employees, the majority in gas and corporate divisions, shedding more than 10 percent from its payroll. It was the second job-cutting spree so far this year.
“It is now time for the company to accelerate its efforts to build and realize value per share,” Southeastern’s CEO and chairman, O. Mason Hawkins, wrote in the SEC filing.
Mr. Hawkins said his firm will reach out to Consol’s management, board and third parties to discuss a possible gas spinoff or sale.
“Southeastern will also work to help [Consol] realize value for its many other valuable assets: thermal coal, met coal, pipelines and the Baltimore terminal,” he wrote.
The possibility of bond and share repurchases also will be on the table, Mr. Hawkins said.
Consol spokesman Brian Aiello said the company values input from Southeastern and all of its shareholders and is “confident in the strategic direction we are in the process of executing.”
Spencer Cutter, senior credit analyst at Bloomberg Intelligence, said the list of possibilities seemingly captures everything under the sun, with bond repurchases being the most likely.
“The hard part about this is we’re in a terrible market for coal and also a very bad market for gas,” he said. “I’m assuming Southeastern’s analysis is: There’s untapped value. But that requires a buyer. There’s so much volatility. No one’s quite sure what the assets are worth, and no one wants to catch the falling knife.”
In the past several years, Consol has already tried several items from Southeastern’s proposed menu. It sold off a majority of its coal mines to Murray Energy Corp, spun out its gas midstream assets in a master limited partnership called Cone Midstream Partners and last month went public with CNX Coal, a coal master limited partnership that operates the company’s thermal coal complex in Washington and Greene counties.
Southeastern has been a major shareholder of Consol for almost three years and has consistently increased its stake in the company over that period of time. It doubled its holdings in the fourth quarter of 2014 and increased them by another 38 percent in the beginning of this year. That bumped it to a 19 percent stake.
On June 30, Southeastern disclosed that Consol was the second-biggest detractor to its Partners fund return. The first was Chesapeake Energy Corp., the Oklahoma-based oil and gas company that received a similar letter from Southeastern in 2012 outlining what the investment firm wanted from management. Southeastern was so hands-on that its advice to executives included telling them to “put their heads down” and curb media interviews and meetings with casual investors.
Since then, Chesapeake changed CEOs and significantly scaled down its spending, concentrating its operations in several core areas.
Southeastern has been pleased with the efforts made at Chesapeake and Consol but, in its 2014 annual report, said both companies suffered by being indiscriminately lumped with other oil and gas companies amid plummeting oil prices during the year.
“Brilliant, value additive divestitures by our energy companies — Chesapeake’s sale of Marcellus and Utica assets … and Consol’s announced IPOs of multiple segments — were not only unrewarded in the market, but seemingly punished,” the investment firm wrote.
Anya Litvak: alitvak@post-gazette.com or 412-263-1455.
First Published: July 22, 2015, 4:00 a.m.
