Dissident Shareholders of Texas Pacific Land Trust Reveal Their Apparent Goal: Seizing Control of TPL Without Paying a Contro...
27 June 2019 - 10:30PM
Business Wire
Dissidents Continue to Refuse to Engage
Constructively
Texas Pacific Land Trust (NYSE: TPL) (the “Trust” or “TPL”)
today commented on what the recent actions of the dissident group
reveal about the group’s apparent intentions for the Trust:
On June 24, 2019, the Trustees of TPL announced the formation of
a Conversion Exploration Committee to evaluate the conversion of
TPL into a C-corporation – one of the dissidents’ core campaign
demands (and something Trustee nominee General Don Cook has
promised throughout his campaign to thoroughly explore). As part of
this announcement, the Trustees invited Horizon Kinetics to
designate a representative to join the Committee, which would give
them an opportunity to participate in deliberations on the future
of the Trust.
Instead of identifying a representative to join the Committee,
the dissident group has now filed in court a motion for declaratory
judgment that Trustee David Barry was not validly elected back in
January 2017 – based on their sudden claim that the New York Stock
Exchange (NYSE) made what the dissidents call an “error” two and a
half years ago. They are also seeking an injunction to enjoin the
Trustees “from taking any
action on TPL’s behalf,” which would effectively render this $6
billion market cap company powerless, ultimately destroying
shareholder value by disrupting TPL’s operations.
Contrary to the dissidents’ assertions, David Barry was validly
elected in January 2017 by nearly two-thirds of the votes cast. It
is now clear that the dissidents have been misleading shareholders
about their apparent intentions all along. The dissidents’
motion is nothing other than an effort to seize control of
not just one, but two of the three
Trustee seats. In doing so, the dissidents have laid bare their
apparent intention: to undertake a hostile takeover by seizing
control of TPL without paying a
control premium to all shareholders.
What’s at risk if the dissident group obtains control of TPL? We
believe they would push for a sale of TPL.1 Although Horizon
Kinetics’ investment in TPL has performed extraordinarily well,
many of the fund’s remaining investments have been lackluster.2
Horizon Kinetics may want to cash out of some of their TPL position
to compensate for other investments. However, with a large stake in
a relatively thinly traded stock, Horizon Kinetics cannot sell its
position without driving down the price. Even worse, under federal
securities laws, Horizon Kinetics is subject to strict volume
limitations for sales of TPL stock, which means it could take the
fund several years to monetize its position in TPL through
sales on the open market.3 That may leave Horizon Kinetics feeling
that it has no other choice than to push for a sale of TPL – with
no concern as to whether the other shareholders would receive full
value. After all, just imagine if we had sold TPL two years ago
when it was merely a ~$2 billion company?4 We would have left
billions of dollars in shareholder value on the table.
On multiple previous occasions, Horizon Kinetics assured the
Trustees and management that they were pleased with TPL’s
performance and that their only issue was the need to modernize the
Trust’s corporate governance. Their actions since the beginning of
this campaign, however, tell a different story. The Trust has made
substantial efforts to accommodate the dissidents, but they have
refused to take part in any constructive conversation. For
example:
- On April 5, Horizon Kinetics first agreed to consider a
compromise candidate but reneged on that promise the following
day.
- On May 8, the Trustees sent a communication labeled “Subject to
Settlement Privilege/Confidential” to Horizon Kinetics in an effort
to set up a meeting to discuss an amicable resolution. Instead of
agreeing to meet, the dissidents published the confidential
communication in a remarkable breach of ethical norms.
- And now, the dissidents have refused to participate in the
evaluation of conversion to a C-corp, which has supposedly been one
of their core campaign issues.
It has now become clear that the dissidents’ campaign is
actually not really about TPL’s corporate structure, “ethical
corporate governance” or “transparency.” The dissidents don’t want
any amicable resolution that leaves them without the true prize:
control of the Trust. After all, TPL is a prized asset, having
outperformed 99% of the NYSE in the past five years leading up to
the dissidents’ proxy contest.
The Trustees will take all necessary actions to protect TPL and
its value for all
shareholders.
Forward-Looking Statements
This release may contain statements that are “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. All statements contained in this release,
other than statements of historical fact, are “forward-looking
statements” for purposes of these provisions, including statements
regarding TPL’s future operations and prospects, the markets for
real estate in the areas in which TPL owns real estate, applicable
zoning regulations, the markets for oil and gas, production limits
on prorated oil and gas wells authorized by the Railroad Commission
of Texas, expected competitions, management’s intent, beliefs or
current expectations with respect to TPL’s future financial
performance and other matters. TPL cautions readers that various
factors could cause its actual financial and operational results to
differ materially from those indicated by forward-looking
statements made from time-to-time in news releases, reports, proxy
statements and other written communications, as well as oral
statements made from time to time by representatives of TPL. The
following factors, as well as any other cautionary language
included in this release, provide examples of risks, uncertainties
and events beyond our control that may cause TPL’s actual results
to differ materially from the expectations TPL describes in such
forward-looking statements: global economic conditions; market
prices of oil and gas; the demand for water services by operators
in the Permian Basin; the impact of government regulation; the
impact of competition; the continued service of key management
personnel; and other risks and uncertainties disclosed in TPL’s
annual reports on Form 10-K and quarterly reports on Form 10-Q. We
undertake no obligation to update publicly or otherwise revise any
forward-looking statements, whether as a result of new information,
future events or other factors that affect the subject of these
statements, except where we are expressly required to do so by
law.
1 For instance, Allan Tessler suggested this to Trustee David
Barry last November and then again in January this year. Also, the
dissident group’s Schedule 13D states that “TPL should now fully
explore [..] opportunities available to maximize value”, which is
code for a sale of a company. 2 For example, 7 out of 8 of Horizon
Kinetics “Horizon Separate Accounts” active strategy funds have TPL
as the largest holding by a wide margin. Of these funds, all but
one are considered to be in the bottom performance quartile. (5
year Relative Performance based on Performance Related Peer Group
defined by Horizon Kinetics, as of March 31, 2019)
3See Rule 144 promulgated under the Securities
Exchange Act of 1934, as amended. In making sales on the open
market in accordance with Rule 144, Horizon Kinetics may not sell
more than the greater of 1% of the outstanding shares or the
average reported weekly trading volume during the four weeks
preceding the filing of a notice of sale during any three-month
period. (For example, in the past four weeks, the average reported
weekly trading volume was only 62,128 shares, less than 1% of the
shares (based on the 4 weeks preceding Friday, June 21, 2019).
Source: FactSet. 4 Based on the market cap as of June 26, 2017.
Source: FactSet.
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version on businesswire.com: https://www.businesswire.com/news/home/20190627005421/en/
Media: Abernathy MacGregor Sydney Isaacs / Jeremy Jacobs
(713) 343-0427 / (212) 371-5999 sri@abmac.com / jrj@abmac.com
Investor Relations: MacKenzie Partners Paul Schulman / David
Whissel (212) 929-5500 or (800) 322-2885
pschulman@mackenziepartners.com
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