April Fools

How appropriate that Aubrey McClendon, will step down/retire from his position of Chief Executive Officer and board member of Chesapeake Energy on of all days One April 2013.

Now that Carl Icahn is the largest shareholder in the company, and Carl has already starting to put his mark (Some would say the mark of Cain) on the company will individual who are either an employee of his holding company or close associates.

The question will be when will the employee’s, the stockholders, and the rest of the market start to actually see Carl’s thumb on the scale, to actually see Carl as the man behind the Curtin, when will Carl come out of the shadows?  I will bet that it will be pretty soon.

Carl is only interested in “Shareholder Value”, as long as that shareholder is Carl, a few crumbs may fall off the table for the rest of us, but no more than actually have to.  This feat of Financial Engineering will be accomplished either through increased dividends (highly unlikely, even with QDI the tax is still too high for him), more likely through stock price appreciation (I smell company buy back) (Tax treatment for long term Capital Gains much nicer).  Carl has a whole entourage to pay.

In the period 19 April 2012 to 24 May 2012, Carl spent 785.3 Million Dollars (a little over 3 quarters of a Billion Dollars to purchase some 50.08 Million shares of Chesapeake Energy (According to SEC filings as of 30 Sept 2012 Carl still reported that he own the shares) (Carl’s reported average cost per share is  $15.68).

Carl will just have to wait until after 25 May 2012 to start his selling spree, buy that time I bet that Carl is at least on the board or a consultant, and he is getting and exercising $0 dollar stock options, with no vesting requirements (Is this a great country or what?).

Chesapeake Energy closed at $18.97 per share 29 January 2013, and its after hour trading price jumped to $20.69 per share.  Based on the closing price Carl is up 20.98 percent.  Based on the after hour price Carl is up 31.95 percent (He shoots He scores).

So far Carl rate of return to date is somewhere between 30 and 46 percent on every dollar that he borrowed to purchase the stock.  All of that gain has to come from somewhere, and the employee’s of Chesapeake Energy and their various suppliers and contractors are about to find out where that where is.

The current board of directors in their press release stated several that the Company was not for Sale (of course not it had just been bought by Carl, he will sell it later) and that many of the employee benefits are going remain intact (in an effort not to spook the employee’s), but folks we all know that it is a pile of horse manure at the very least.  Things will have to change, Chesapeake Energy is being mined and company costs will have to be reduced, and profit’s increased as they will be pulled out the company as fast as Carl’s minions can run the spreadsheets.  Expect a whole series of unnatural sex acts.

The employee’s may be at risk, but the employee has always been at risk (whether they knew it or not).  The herd will be thinned, the weak, and the old (typically they are one in the same) will be offered up to altar of profit.   As far as the board of directors is concerned, all that matters for now is that the board members are safe and secure.

Carl could not have not done this with out the very special help of a very special individual, that individual is none other than Aubrey McClendon.  Aubrey McClendon actions over the past few years were key to this situation.

As one of my favorite television show character would say, “Sherman turn the Way Back Machine to fall of 2008, location Headquarter Chesapeake Energy”.  Here we will find Aubrey McClendon having to sell 33.4 Million shares of Chesapeake Energy because of margin calls.

Aubrey had been for at least the previous year purchasing Chesapeake Energy stock with borrowed money, and with the stock market in free fall, and it repercussion in the economy Aubrey got creamed (I know it is a very technical term).  Chesapeake Energy stock price suffered a 54 percent reversal between August 29 2008 and October 30 2008.  Chesapeake Energy stock had closed as high as $69.40 in the preceding 12 months.  Chesapeake Energy closing prices in October of 2008 were the lowest for the preceding 12 months.

Aubrey McClendon, that captain of industry had been caught in two of the most basic errors that an “Investors” can make.  First borrowing money to purchase stocks (Leverage, great going up but a real bitch coming down.)  Second and fundamentally much worse buying high and sell low (granted Aubrey was forced to sell low, but a sale is a sale, think of the capital loss that he gets to carry forward on his tax return, will he ever be able to use it all to offset any capital gain, and at $3000 dollars per year of dividends offset it will take a long time to reap the rewards of the loss).

A few questions for Aubrey McClendon, since you were the CEO, why oh why did you not get more $0 stock options with zero vesting?  Why were you in your capacity as CEO not raping or at least slightly pillaging the company?  I think Aubrey that you actually have feeling for the company and it employees.  Aubrey you may be comforted by the fact as Carl Icahn has demonstrated on numerous occasions in the past that he will have no such compulsions against performing any of these actions.  Carl is only concerned about and for Carl.