Activism in energy sector creates obstacles for M&A

Thu Aug 29, 2013 12:30pm EDT
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By Michael Erman

NEW YORK (Reuters) - When hedge fund TPG-Axon launched its activist campaign at U.S. oil and gas company SandRidge Energy Inc (SD.N: Quote) last year, the activist investor laid out hopes that the company could explore a sale.

But an outright sale of the company has not happened. Paradoxically, that is at least in part because of a surge in activism in the energy sector this year, bankers and analysts said.

According to Thomson Reuters data, there have been 13 activist situations involving publicly traded energy companies in the first eight months of 2013 alone. That is the same number of activist campaigns launched against energy companies for the period spanning 2003 to 2007.

Activist investors have pushed oil and gas companies to simplify their structure, by selling or spinning off non-core businesses. That has made executives and boards less willing to consider large corporate deals, which would defuse that focus and make them targets for activist investors, bankers said.

"The kinds of deals that would cause activists to be concerned aren't being done today," said Citigroup's (C.N: Quote) global head of energy investment banking Stephen Trauber. Trauber said energy companies are currently unlikely to buy a diverse company without plans in place to exit some of the new businesses.

Deals in the energy space are down 34 percent in 2013, compared with the same period last year, Thomson Reuters data shows.

Low natural gas prices and their effect on land values have played a big role in keeping the energy sector's deal flow subdued, but so has management's worry that empire-building would attract activists.

"The market likes simpler stories and is not valuing integrated or diverse companies as well," said Deutsche Bank's head of energy mergers and acquisitions for the Americas Gregory Sommer. "The market has rewarded those companies that have separated assets. Activists get that. In some respects, activists have picked up on that and forced changes."   Continued...