JANA Partners LLC Announces Intention to Vote Against Houston Exploration's Board and Encourages Other Shareholders to Join The
24 Abril 2006 - 7:30AM
PR Newswire (US)
NEW YORK, April 24 /PRNewswire/ -- JANA Partners LLC ("JANA"),
following up on its public call for the Board of Directors of The
Houston Exploration Company ("Houston Exploration" or the
"Company") (NYSE:THX) to immediately take steps to maximize
shareholder value, announced today that it intended to withhold its
vote for the Company's directors at the Company's annual meeting of
shareholders, to be held on Friday, April 28, 2006, and encouraged
other shareholders to do the same. JANA is a $5 billion hedge fund
with offices in New York and San Francisco and is the beneficial
owner of approximately 9% of the outstanding shares of Houston
Exploration. "This week's annual meeting offers the chance to put
directors on notice that shareholders are keenly focused on the
Board's next steps and to warn them of the consequences of
squandering the opportunity they presently have to deliver the
highest possible returns to their shareholders," stated JANA
Managing Partner Barry Rosenstein today in an open letter to the
Company's shareholders. Mr. Rosenstein encouraged Houston
Exploration shareholders to send this message to the Board by
selecting the "WITHHOLD ALL NOMINEES" option in the "Directors"
section of the paper or electronic proxy card delivered to
shareholders by the Company in connection with this week's annual
meeting or to make such elections by telephone. He also noted that
proxies would need to be returned prior to the Friday, April 28,
2006 meeting date and that all shareholders of record as of March
9, 2006 were eligible to vote, and further pointed out that
shareholders who have already voted could change their vote simply
by submitting a new proxy prior to Friday's meeting. On April 10,
2006, the Company announced the sale of certain Gulf of Mexico
offshore assets for $590 million, and has indicated that it may use
much of the proceeds to pursue new acquisitions and repay debt. In
a letter sent last week to the Board, Mr. Rosenstein described such
actions as far less beneficial to shareholders than using these
proceeds plus additional leverage to undertake a substantial share
repurchase, and added that new acquisitions would likely destroy
value given the execution risk associated with them and the
Company's history of underperformance. Mr. Rosenstein noted today
that following last week's letter he had received a cursory
response from the Board which he compared to a "form letter" and
which reiterated the Board's intention to repurchase only $200
million of stock. "The Board's response to our analysis on how best
to maximize value however has been unsatisfactory in every way and
evidences a shocking disregard for the pursuit of shareholder
value," Mr. Rosenstein said in today's letter. "Rather than
committing to seeking the highest possible return for shareholders,
the Board appears intent on following a plan which we believe is
certain to deliver lower returns for shareholders than a
significant share repurchase. Furthermore, the members of the Board
appear to feel no obligation to make any real attempt to offer a
coherent explanation for their unwillingness to deviate from this
course." "The Board has a fiduciary duty to its shareholders do to
more than mouth empty phrases and platitudes as they proceed
blindly with plans which are all but guaranteed to squander
shareholder assets," he continued. "However, the Board appears to
feel that because the issue regarding the use of the Gulf of Mexico
proceeds has arisen shortly before the annual meeting, at which
they are running unopposed, they are free to pay lip service to
demands that they pursue value maximization." Mr. Rosenstein also
noted that Houston Exploration's bylaws require a shareholder
seeking to nominate new directors to notify the Company almost six
months in advance of this year's meeting, a requirement which he
called "clearly at odds with any reasonable notion of good
corporate governance". In a situation such as the present one he
noted, where the announcement of the Gulf of Mexico sale occurred
well after the passage of this deadline, the Board effectively had
the ability to take actions clearly contrary to shareholder
interests without challenge from shareholders until the following
year's meeting. "For these reasons, we are encouraging all Houston
Exploration shareholders to send a message to the Board that they
must not squander the proceeds of the Gulf of Mexico sale, assets
which belong to the shareholders, on value-destroying acquisitions,
and that they must instead put this money to work for shareholders
through a significant share repurchase," Mr. Rosenstein concluded.
"While the current Board faces no opposition this year and thus
will undoubtedly be re-elected, choosing to withhold your vote for
all directors at this week's annual meeting will tell them that
while their seats may be safe for this year, shareholders are
watching them closely and demand results." Background JANA Partners
LLC, a Delaware limited liability company, holds the Company's
common stock in various accounts under its management and control.
ATTACHMENT: FULL TEXT OF APRIL 24, 2006 LETTER FROM JANA PARTNERS
LLC TO ALL SHAREHOLDERS OF THE HOUSTON EXPLORATION COMPANY AN OPEN
LETTER TO THE SHAREHOLDERS OF THE HOUSTON EXPLORATION COMPANY FROM
JANA PARTNERS LLC April 24, 2006 Ladies & Gentlemen, We are
contacting you because we believe the time has come to deliver a
message to the Board of Directors (the "Board") of The Houston
Exploration Company ("Houston Exploration" or the "Company") that
they must reverse the Company's history of underperformance and
immediately embark on a clear path to maximizing value for
shareholders. This week's annual meeting offers the chance to put
directors on notice that shareholders are keenly focused on the
Board's next steps and to warn them of the consequences of
squandering the opportunity they presently have to deliver the
highest possible returns to their shareholders. As you may know,
last week we called upon the Board to use the available proceeds of
the recent $590 million Gulf of Mexico asset sale and the Company's
underleveraged balance sheet to repurchase a significant amount of
the Company's currently undervalued stock. Assuming the Company
uses these sale proceeds together with additional leverage to
repurchase approximately 11 million of its shares, we believe it
could increase 2007 EPS by over 40%. As we outlined last week in
our letter to the Board, given the Company's woeful performance in
comparison to its peers, it is all the more apparent that the Board
must seize this opportunity immediately for shareholders. The
Board's response to our analysis on how best to maximize value
however has been unsatisfactory in every way and evidences a
shocking disregard for the pursuit of shareholder value. Rather
than committing to seeking the highest possible return for
shareholders, the Board appears intent on following a plan which we
believe is certain to deliver lower returns for shareholders than a
significant share repurchase. Furthermore, the members of the Board
appear to feel no obligation to make any real attempt to offer a
coherent explanation for their unwillingness to deviate from this
course. -- If you wish to send a message to the Board that they
must take immediate steps to deliver maximum value, select the
"WITHHOLD ALL NOMINEES" option corresponding to "Directors" on the
proxy card provided to you by the Company or on the applicable
proxy voting website, or if you are voting by telephone select such
option when prompted. Proxies must be submitted prior to the
Company's Annual Meeting, which is scheduled to be held on Friday,
April 28, 2006. Shareholders should therefore submit their proxies
as soon as possible. Even if you have already voted, you can change
your vote at any time prior to the annual meeting simply by
submitting a new proxy with your new elections. Only shareholders
of record as of March 9, 2006 may vote at this year's Annual
Meeting. Shareholders should contact their brokers with any
questions. -- In response to our call last week for a significant
share repurchase, which followed previous discussions with the
Company in which we explained the benefits of doing so, we received
from the Board what looked like a form letter making a vague
reference to exploring the issue and thanking JANA for its
"interest in our company" (an interesting choice of words
considering that the Board members own less than one-half of a
percent of the Company's shares). The Board in its letter then
reiterated the Company's intention to repurchase only $200 million
of its shares, rather than putting all of the available Gulf of
Mexico sale proceeds into the share repurchase, and have said they
will use the remainder for other uses including acquisitions and
debt repayment. It appears that about as much thought and effort
was put into this response as went into the Board's earlier
responses when presented with our analysis, which is to say almost
none. We say this because the Board has offered nothing in the way
of quantitative analysis or even rational qualitative analysis to
justify its announced intentions. Rather than attempting to
demonstrate that their plans offer the most value for shareholders,
the Board's methodology in arriving at a $200 million repurchase
amount appears to have been limited to selecting a nice, round
number. No effort has been made to prove to shareholders that the
Board has carefully considered its options and is making the best
possible use of the Company's assets. As we have said, it appears
quite clear in fact that such an analysis would show that the
opposite is true. First, we believe the evidence is indisputable
that there are no acquisitions the Company can pursue that will be
nearly as accretive as a substantial share repurchase. Even the
simplest analysis demonstrates that the Company is highly unlikely
to find acquisitions at multiples lower than those at which its
stock is currently valued. Even if it were to do so, significant
execution risk for onshore acquisitions is likely to further
diminish the returns such acquisitions might deliver. We note again
that we have fully accounted for the potential tax benefits
associated with using the sale proceeds to purchase new assets in
coming to this conclusion. Second, the Board has offered no
compelling justification for using any of the proceeds of the Gulf
of Mexico sale to repay debt rather than to help fund a significant
share repurchase. Nor have they offered a satisfactory explanation
for why they refuse to increase leverage to provide the remainder
of the funding for such a share repurchase, despite clear evidence
that doing so would greatly benefit shareholders while leaving the
Company with a more efficient capital structure. Their sole
justification, which is maintaining the Company's current high debt
rating, does almost nothing to improve shareholder returns, whereas
using the strength of the Company's balance sheet to repurchase
additional shares will deliver substantial value. To the extent
that the Company's agreements with its creditors place restraints
on their ability to undertake such actions, the Company should open
negotiations with such lenders to permit them, as is quite common
in such situations, or if necessary to refinance such obligations.
The Board has a fiduciary duty to its shareholders do to more than
mouth empty phrases and platitudes as they proceed blindly with
plans which are all but guaranteed to squander shareholder assets.
However, the Board appears to feel that because the issue regarding
the use of the Gulf of Mexico proceeds has arisen shortly before
the annual meeting, at which they are running unopposed, they are
free to pay lip service to demands that they pursue value
maximization. We also note that Houston Exploration's bylaws have
been crafted to provide the Board an extraordinary amount of cover
from shareholder demands. A shareholder seeking to nominate new
directors would have to have notified the Company almost six months
in advance of this year's meeting (a length which is at the far
extreme of the range for such periods and is clearly at odds with
any reasonable notion of good corporate governance). In other
words, the Board essentially gives itself a pass for almost a year
and a half, knowing that shareholders wishing to seek new
representation as result of the Board's actions must do so almost
six months before the annual meeting or wait up to almost 18 months
for the next meeting. This egregiously early deadline is what makes
it possible for the Board to announce that it intends to pursue a
course of action that it appears to have done no legitimate
analysis regarding and which we believe will create far less value
for shareholders than a significant share repurchase, yet remain
immune to shareholder challenge at the next annual meeting. For
these reasons, we are encouraging all shareholders to send a
message to the Board that they must not squander the proceeds of
the Gulf of Mexico sale, assets which belong to the shareholders,
on value-destroying acquisitions, and that they must instead put
this money to work for shareholders through a significant share
repurchase. While the Board faces no opposition this year and thus
will undoubtedly be re-elected, choosing to withhold your vote for
all directors at this week's annual meeting will tell them that
while their seats may be safe for this year, shareholders are
watching them closely and demand results. No board can hide from
its shareholders forever, and we encourage you to take this
opportunity to serve clear notice to the Board that you will not
hesitate to hold them accountable, even if such accountability is
deferred until next year, should they fail to immediately pursue
maximum value for all shareholders. Sincerely, /s/ Barry Rosenstein
Barry Rosenstein JANA Partners LLC Managing Partner DATASOURCE:
JANA Partners LLC CONTACT: JANA Partners LLC, +1-212-692-7696
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