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Kerr-McGee’s stock rockets Former raider Icahn to buy up to $1B in Kerr-McGee stock; chemicals division sale possible Ray Tyson Petroleum News Houston Correspondent
Kerr-McGee is no doubt feeling the heat from investors after receiving a rude wake-up call from former corporate raider Carl Icahn and his plan to buy up to $1 billion worth of Kerr-McGee stock.
Icahn’s move was quickly followed by Kerr-McGee’s decision to pursue “strategic alternatives” for its shaky chemicals division, a strong indication that the big Oklahoma-based independent would like to sell the division and become a pure exploration and production company.
Kerr-McGee is said to be lagging its peers in the stock market, despite a strong exploration and production record that has benefited mightily from the unprecedented run up in oil and gas prices. However, while Kerr-McGee’s chemicals unit has posted impressive returns of late, it has been a drag on company earnings in the past.
Icahn stepped into the picture on Feb. 18 when Kerr-McGee announced that it had received letters from Icahn and his Icahn Partners Master Fund, saying that each had filed notice under the Hart-Scott-Rodino Act regarding the intention of each to acquire between $100 million and $500 million of Kerr-McGee stock, for a total of up to $1 billion.
Kerr-McGee said it had no other contact with Icahn and declined to speculate on Icahn’s motives. In a prepared statement, Kerr-McGee chief executive Luke Corbett said only that “the company welcomes all investors as we continue to explore ways to enhance value for all our shareholders.”
Icahn, a former corporate raider known for his role in attempting to break up RJR Nabisco, has previously held investments in Kerr-McGee. And a $1 billion investment in the company would give him and his hedge fund a roughly 10 percent stake in Kerr-McGee, certainly a large enough position to be taken seriously at the bargaining table.
Nevertheless, investors received Icahn’s message loud and clear, as Kerr-McGee stock rose more than 7 percent over a two-day period to $74.20 per share, a 52 week high. After announcing Feb. 23 that it was pursuing strategic alternatives for its chemicals unit, Kerr-McGee stock climbed to $76.62 per share, nearly an 11 percent increase per share over the Feb. 18 closing.
Kerr-McGee, in addition to its oil and gas production, is the world’s third largest producer of titanium oxide, a white pigment used in paints, plastics and paper and marketed under the Tronox label. Titanium dioxide accounts for about 85 percent of the chemicals division’s sales. Chemicals’ demand brings increase in earnings forecast Rick Buterbaugh, Kerr-McGee’s vice president of investor relations, told analysts in the Feb. 23 interim earnings conference call that strong demand for chemicals had caused Kerr-McGee to increase its 2005 first-quarter earnings forecast for the division by 20 percent to $25 million to $27 million.
“In light of these developments, much of our March 8 board meeting will be devoted to discussions regarding all strategic alternatives associated with this business segment, and we have engaged an investment bank to assist in these efforts,” he said.
A spokesman for Kerr-McGee told Petroleum News Feb. 24 that the company “will look at all options” for its chemicals division, including reorganization of the division as well as a possible sale. Emerging from a three-year slump, the division accounted for $1.32 billion in sales in 2004, or 25 percent of Kerr-McGee’s $5.18 billion revenue for the year.
In January Kerr-McGee reported 2004 fourth-quarter profit from all the company’s divisions of $133.8 million or 86 cents per share, compared to a profit of $50.5 million or 50 cents per share in the 2003 fourth quarter.
The company also posted record production for the 2004 fourth quarter. Oil production averaged 184,700 barrels per day, up 32 percent from the same period a year earlier, while natural gas output averaged 1.125 billion cubic feet per day, a 51 percent increase when compared to the year-ago period. Much of the increase was attributed to start up of production in China, the acquisition of Westport Resources and increasing production from deepwater Gulf of Mexico.
Despite past exploration successes in deepwater Gulf of Mexico, Kerr-McGee admittedly came up short of company expectations in 2004. In January Kerr-McGee’s Corbett said that if the company didn’t “execute cleanly” on the exploration front this year, it was prepared to change its strategy in the region.
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