Over the past week, Chesapeake Energy’s (CHK: Charts, News) CEO Aubrey McClendon has loomed large in financial headlines, after leaked internal documents revealed that McClendon had misappropriated millions of dollars of company funds to personal investments and projects. Activist investor Carl Icahn, who owns a 7.6% stake in Chesapeake, has accused McClendon on spending excessively on excess businesses not related to its core competencies of oil and natural gas production, even as prices sharply dropped this year. The company is now under heavy pressure to replace nearly half of its board of directors to answer for its missteps. Daily Chart Internal documents reveal that McClendon used teams of Chesapeake employees to handle personal business affairs, as well as the company jet to ferry family and friends to holiday destinations. This “special unit” of employees, known as AKM Operations, was housed on Chesapeake’s corporate campus, with rotating employees designated with accounting and engineering responsibilities. McClendon also funded personal projects from company funds. In 2010, McClendon’s personal projects consumed $3 million of Chesapeake’s funds as well as 15,000 working hours from company employees. Another internal document, leaked to Reuters, revealed that company employees did an additional $3.2 million in work for McClendon alone, including repairing hailstone damage on his personal property. Another controversial project was a 31,000 square foot warehouse, which cost $3 million, to house McClendon’s personal wine collection within a mile of Chesapeake’s official campus. The lavish project was eventually halted due to financial difficulties in 2008. McClendon also booked $2.25 million in company flights in 2010. On these flights he brought his family and friends to various international destinations, including his own vacation properties in Bermuda. Several of the company flights were even booked by friends of the family, without any McClendons on board. In addition to McClendon’s liberal personal use of company funds, Carl Icahn has highlighted Chesapeake’s $300 million in Oklahoma City area real estate, which includes several shopping centers, a church, a grocery store and several houses. Icahn harshly criticized Chesapeake’s focus on these “non-core assets,” which further punish the company’s margins and bottom line in times of dropping commodity prices. Fadel Gheit, an analyst at Oppenheimer & Co., noted that its real estate subsidiary, Chesapeake Land Development, would have to be forcibly reined in. Creditsights Inc. analysts Brian Gibbons flatly stated, “They should not be involved in real estate development.” McClendon uses his own private investment firm, Arcadia Farm LLC, to invest heavily in real estate. However, Arcadia only holds a small slice of Chesapeake’s Oklahoma City real estate, at $24 million. McClendon expressed that real estate development was one of his lifelong passions, and that he would have been a developer “in another life.” Chesapeake is also the landlord for the upscale restaurant Deep Fork Grill – a restaurant which McClendon owns a 49.7% share. This unusual arrangement, in which a CEO’s company rents out a property for his own personal investment needs, represents a conflict of interest to many shareholders. Southeastern Asset Management, Chesapeake’s largest shareholder at 13.6%, also strongly urged the company to focus solely on oil and gas development and divest of all other assets, including real estate. Chesapeake, which is running low on cash, is finalizing a deal to sell the vast majority of its pipeline assets for $4 billion in cash – a deal the company’s major shareholders believe will further weaken the company’s core competencies. Over the past twelve months, Chesapeake shares have slid nearly 40%. Declining oil and natural gas prices are expected to continue to weigh on the stock price. Shares are trading at 10.3 times forward earnings with a 5-year PEG ratio of 7.5. These fundamentals suggest sluggish to negative growth on the horizon. The stock pays a quarterly dividend of 9 cents per share. Other News About CHK ChesapeakeDevelopedShoppingCentersasGasPricesFell Investors disapprove of Chesapeake’s real estate investments. ChesapeakeCEOisalsotheSultanofOklahomaCity Allegations of nepotism, cronyism and a lavish lifestyle have raised red flags. Other Stocks in the News Yumplansdoublingofsitesby 2020 Is Yum set to take down McDonald’s this decade? LULUStockFlopsEvenasLululemonEarningsSoar Lululemon stock plunges despite incredible earnings. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Investors Declare War on Chesapeake Energy’s (CHK) CEO Aubrey McClendonBy: Leo Sun, dated June 8th, 2012
Recent Commentary and Articles
- S&P 500 Closes With Its 28th Record High of the Year; Labor Market Not Fully Recovered
- McDonald’s Names New U.S. President; eBay Considering Spinning Off PayPal
- GameStop (GME) Stock Soars on Second Quarter Results
- The Demise of Sears Continues; S&P 500 Closes Above 1,992
- Dollar Tree (DLTR) Reports 2Q Earnings, Family Dollar Rejects Dollar General Bid
- When Will the Fed Raise Short-Term Interest Rates?
- Salix Pharmaceuticals (SLXP) Soars on Acquisition Offer