SandRidge reverses course on proxy fight fallout; TPG-Axon fires off

By Susanna Moon

Chicago, Feb. 8 - SandRidge Energy, Inc. said it no longer saw any threat from defaulting under its loan terms or triggering a change-of-control offer under its senior notes as a result of replacing its board of directors as proposed by TPG-Axon group.

The company changed its position on facing "potential significant consequences," given the investor group's board takeover attempts in an 8-K filing with the Securities and Exchange Commission on Friday morning.

The move drew an angry rebuke from TPG-Axon and its affiliates.

SandRidge filing

SandRidge said that, after another review on Feb. 6, its board realized that the noteholders would be unlikely to accept an offer to repurchase the notes because the notes are trading above the repurchase price under the note terms, the 8-K filing noted.

In addition, there is no debt outstanding under the credit agreement, so there is unlikely to be "a material consequence" if a default occurs under the loan terms, the filing noted.

The board reviewed the change-of-control provisions in the credit agreement and the note indentures "in light of current market conditions" and was advised by the company's financial adviser on the likely financial implications if a change of control occurred, which would constitute an event of default under the loan terms and require the company to make an offer to repurchase the senior notes.

The board's assessment is based on "market conditions and the market's recognition of the company's financial strength and liquidity position, and assuming continuation of current market conditions," the company noted.

The company said its board will continue monitoring the capital and credit markets for any significant change in the current market conditions affecting its conclusions.

TPG-Axon responds

Later in the day on Friday, TPG-Axon Management LP and its affiliates responded to the company's change of mind by sending e-mail messages to news media sources, according to a schedule 14A filing.

"As the analysis in our Feb. 7 presentation indicates, we have never believed bondholders would look to tender," the company reportedly said in the e-mail.

"We are shocked that the board of directors would need a financial adviser to point this out - yet another poor use of shareholder money - and more to the point, that the directors would, in the first place, use the threat of defaulting bonds as what we believe to be a scare tactic in an attempt to protect their positions.

"We believe that it's simply not enough to recognize the reality in an 8-K. As we have said all along, it's time for real change at SandRidge to get the company on the right track and focused on delivering value to its shareholders."

Potential change-of-control offer

The company warned investors on Jan. 18 that its proxy fight with an investor group could result in a change of control that would require it to offer to buy back more than $4.3 billion of its senior notes.

As noted before, TPG-Axon Group is trying to replace all members of the company's board with its own nominees. If successful, the plan could constitute a change of control, and the resulting requirement to hold a tender offer could be "materially harmful" to the company, SandRidge said in a previous news release.

TPG-Axon owns 6.7% of the company's common stock. In its consent solicitation, the group said that SandRidge's stock had declined by almost 80% since its initial public offering in 2007 and blamed this "destruction of stockholder value" on "poor and erratic strategic decisions, excessive spending and self-interested transactions."

In its news release, SandRidge said it took a number of initiatives to improve its liquidity and overall financial strength.

"In particular, the announced sale of our mature Permian assets for $2.6 billion will generate cash proceeds of over $1.4 billion in excess of our net investment, dramatically reduce our net debt balances and give us the resources needed to fund our growth" in the Mississippian Lime play of northern Oklahoma and western Kansas, the previous release said.

SandRidge said it had reduced its ratio of net debt to EBITDA to 3.2 times at Sept. 30 from 4.6 times a year earlier and expected to reduce the ratio to under 2 times with the proceeds of the Permian Basin sale.

In addition, the company believed that the TPG-Axon nominees would "immediately encourage and facilitate a major restructuring or a premature sale of SandRidge designed to benefit short-term investors."

SandRidge is an oil and natural gas company based in Oklahoma City.

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