MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY, JULY 06, 1998 (6)
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Chesapeake Announces 1999 Goals and Initiates Process to Enhance
Shareholder Value, Including Possible Sale or Merger of the Company
Chesapeake Energy Corporation (NYSE: CHK) announced Tuesday that
its Board of Directors has authorized management to explore alternatives to enhance shareholder value, including a possible sale or merger of the company, based upon the Board's opinion that the market is substantially undervaluing its assets and exploration potential.
Board Authorizes Process to Enhance Shareholder Value
Aubrey K. McClendon, Chesapeake's Chairman and CEO, today announced,
''Chesapeake's Board of Directors has authorized management to explore various alternatives to enhance shareholder value, including a sale or merger of the company. With our attractive Mid-Continent and Canadian natural gas assets and with initial drilling results from three of our four major natural gas exploration projects expected in the next 30-60 days, we believe the full value of Chesapeake's assets are not
recognized by the market. As owners of approximately 30% of the company's common stock, management and the Board are committed to seeing that Chesapeake's shareholders are able to realize the full benefit of their investment in our company. The company has begun the process of selecting financial advisors.''
In addition, recognizing the company's attractive natural gas asset base and its low stock price, Chesapeake's Board of Directors has unanimously adopted a Shareholder Rights Plan designed to deter coercive takeover tactics and to prevent a change of control from occurring without all shareholders receiving a fair price. The company will distribute a letter in the near future detailing the terms of the Shareholder Rights Plan.
Chesapeake's 1999 Targets Established
With the company's Mid-Continent and Canadian natural gas growth strategies in place, Chesapeake expects its 1999 production to reach 140-145 billion cubic feet of natural gas equivalent, of which 75% should be natural gas. If these production goals for 1999 are realized, and based on average realized wellhead prices of $18.00 per barrel of oil and $2.40 per mcf of natural gas, the company believes earnings, before interest expense, taxes, depreciation and amortization (EBITDA) could total $270 million. These goals also anticipate a 1999 drilling capital expenditure budget of approximately $200 million and a cost structure of $0.52 per mcfe for lease operating and production tax expenses and $0.15 per mcfe for general and administrative expense.
For the quarter ending June 30, 1998, the company expects to report a loss of up to $250 million, largely the result of a full cost ceiling writedown caused by lower oil and gas prices and the accounting treatment for various acquisitions completed during the second quarter. As of June 30, 1998, the company believes its proved oil and
gas reserves were approximately 1,250 bcfe, of which 75% are natural gas. Of its total proved reserves, 65% are located in the Mid-Continent, 15% along the Gulf Coast, and 20% in Canada and elsewhere. The company's goal is to increase its proved reserves during the next year to 1,350-1,400 bcfe.
The company's current long-term debt is $920 million, which carries a weighted average interest rate of 9.1% and has no maturities scheduled until 2004. During the past month, the company has reduced its outstanding common share count to 101 million from 106 million shares as a result of a $20 million common stock repurchase program. Additionally, as of June 30, 1998, the company's cash balance was approximately $60 million and the company's investments in other companies, its gas marketing and gathering assets, undeveloped leasehold and other assets have a remaining book value of approximately $225 million.
Chesapeake Energy Corporation is an independent oil and natural gas producer headquartered in Oklahoma City. The company's operations are focused on exploratory and developmental drilling and producing property and corporate acquisitions in major onshore producing areas of the United States and Canada. The company's Internet address is
chesapeake-energy.com.
Oil and Gas, Gold Mining Sectors Cited as 'Extremely Attractive' By
Alertnewsletter.com
Internet investment newsletter ''alertnewsletter.com'' stated this week that the Investors should look closely at the Oil and Gas and Mining sectors. Expecting a ''sharp bounce'' in Oil and Natural Gas prices, and ''move back to $320 level'' in Gold prices.
In the Oil and Gas sector, shares of Amerada Hess (NYSE: AHC - news) and St. Mary Land Exploration (Nasdaq: MARY) were recommended as Strong Buys. Newmont Mining (NYSE: NEM) was mentioned in the Mining sector as a Strong Buy.
Strong Speculative Buys were recommended in shares of Nevtah (OTC Bulletin Board: NTAH) and Intergold Corporation (OTC Bulletin Board: IGCO). Nevtah (www.nevtah.com) is a small Oil and Gas company with lucrative joint venture agreements in the Southwestern United States and the Caspian Sea. Intergold Corporation (www.intergoldcorp.com) is an exploratory mining company; Bateman Engineering's recent verification of drilling and gold values of Intergold's Blackhawk property in the State of Idaho was the primary reason behind the recommendation.
Alertnewsletter.com is an Internet based investment newsletter covering trading and speculative picks from virtually every area of the market. Free 30 day trials and disclosure information are available by pointing your web browser to alertnewsletter.com.
Mergers in first half of 1998 surpass all of 1997
The value of mergers and acquisitions in the Canadian corporate sector during the first half of 1998 has already surpassed the record levels reached all of last year.
By the end of June, Canadian companies had forged 605 deals worth $105.9 billion, up 132 per cent over 1997's mid-year total of $45.6 billion, according to Toronto-based investment bankers Crosbie and Co. Inc.
So far, this year's mergers and acquisitions are worth four per cent more than 1997's full-year total of $101.6 billion, while the number of deals is down four per cent from the 630 announcements made in the first half of 1997, the company said Monday.
Low interest rates, rising stock markets and a broad trend toward strategic corporate consolidation have helped push mergers to record levels, Crosbie said in its latest quarterly report on mergers and acquisitions.
The Crosbie and Co. report includes acquisitions as well as asset sales involving Canadian companies.
Despite the rising number of high-profile mergers, a steady increase in mid-sized deals worth less than $100 million have contributed more than two-thirds of the activity, said partner Colin Walker.
The industrial products sector weighed in with 86 merger deals worth a whopping $17.7 billion, up 32 per cent in terms of numbers and nearly eight times the dollar value over the first half of 1997.
That was largely the result of two deals announced in May -- Northern Telecom Ltd.'s $13.4-billion blockbuster purchase of Bay Networks Inc. and BCE Inc.'s decision to sell its $1.3-billion stake in Cable and Wireless Communications plc of Britain.
Consumer products businesses came in second in terms of dollar value with $16.9 billion worth of deals, thanks in large measure to Seagram Inc.'s decision to buy recording giant Polygram NV for $15 billion.
The oil and gas sector registered 38 planned transactions, down seven per cent.
The number of Canadian companies acquiring foreign firms climbed 16 per cent to 165 deals worth $45.8 billion, compared with 142 agreements worth $8 billion at the midway point of 1997.
Canadian Firms Go On U.S. Shopping Spree
The Financial Post
Canadian firms went on a cross-border shopping spree in the first half of this year, leading to a huge increase in mergers and acquisitions.
They spent $46 billion on 165 foreign companies, most of them American, according to the Toronto office of the boutique U.S. investment bank Crosbie & Co.
That's up 462% from the $8 billion in the same period last year.
"There's a lot more room for Canadians to acquire in the U.S. than the other way around," said Colin Walker, a Crosbie partner.
Among the biggest deals are:
In May, Northern Telecom Ltd. paid $13.4 billion for Bay Networks Inc.
In June, Teleglobe Inc. spent $4.6 billion for Excel Communications Inc.
In February, Canadian National Railway Co. dropped $3.3 billion for Illinois Central Corp.
Overall, the value of M&As, in Canada and abroad, hit $106 billion in the first half of this year, more than the $102 billion spent in all last year, Crosbie's study showed. Its statistics included any purchase of more than 20% of a company.
Canadian firms do well when they invest in the U.S., according to another study.
In a survey of all M&As in Canada in the 1990s, the Toronto office of U.S.-based Mitchell Madison Group found Canadian acquisitions had a 62% success rate, compared with a 45% rate for U.S. firms.
"Success" means two years after an acquisition, the acquirer was outperforming its industry's index.
Canadian firms had an 82% success rate buying U.S. firms.
Partner Kenneth Smith of Mitchell Madison said Canadian companies fare better in the U.S. than they did in the 1980s because they take a more conservative approach.
"They are paying less, but worrying more," he said. "They go in not with hostility or swagger, but with a good solid plan."
Marti Smye, president of People-tech of Toronto, a division of U.S. firm Right Management Consulting, said Canadians succeed when they take over foreign firms because they are respectful of other peoples' cultures. "Canadians make great expats because they get along with everybody."
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