Callon calls Lone Star’s actions ‘ill-advised and self-serving’
by MBJ Staff
Published: January 8,2014
NATCHEZ — Callon Petroleum Company has issued the following statement concerning recent demands made by Lone Star Value Management, LLC (“Lone Star”):
“Lone Star’s demands appear both ill-advised and self-serving. By advocating for a sale now, Lone Star seems to be focused on realizing a quick trading profit, which would be contrary to the interests of the Company’s longer-term investors. In addition, Lone Star’s claims regarding Callon’s performance are not supported by the facts.
“Callon’s Board of Directors and management team are fully committed to creating value for all Callon shareholders, and we have a solid track record in this regard. Indeed, we have delivered a 73 percent increase in Callon’s stock price since April when we announced our intention to exit the Gulf of Mexico and become an onshore operator, and a 27 percent increase in Callon’s stock price over the past year, outperforming the SIG Oil Exploration & Production Index as well as the S&P 500 in both periods.
“Callon’s Board has taken – and will continue to take – all appropriate steps to drive shareholder value. Through focused execution, we have successfully completed Callon’s transformation to an onshore operator. As a result, we have optimized and de-risked the company’s asset base, lowered its cost of capital, and established a solid track record of both production and reserve growth. Today, our strategy, our assets, our capital and our future are focused on the Permian Basin, and Lone Star is wrong to suggest otherwise. It seems clear to us that Lone Star is either inexperienced or purposely misleading shareholders given its suggestion that we are pursuing growth outside of the Permian Basin. Callon has repeatedly stated that it would pursue complementary acquisitions in the Midland Basin and would evaluate selective opportunities in the Delaware Basin. The Permian Basin comprises both the Delaware and Midland Basins.
“We strongly believe a sale of the company at this time, just as we are beginning to unlock the value of our Permian Basin acreage position, would prevent Callon shareholders from realizing full value for their investment. Indeed, value from such a portfolio of opportunities is maximized after production growth is realized from de-risked zones and additional zones are established through delineation drilling. We have continued to deliver production growth, exceeding our targeted 2013 exit rate of 3,500 barrels of oil equivalent per day for the month of December 2013, which represents 150 percent growth since January 2013. As we deploy capital in the Permian Basin, we expect continued growth in production and reserves, creating additional net asset value for shareholders. Selling the company now, prior to these increases and resulting value creation, would deny Callon shareholders the opportunity to maximize the value of their investment. Of course, to the extent that the Board receives a proposal to acquire the Company, we would consider it consistent with our fiduciary duties.
“Lone Star’s statements are misleading regarding the purposes for increasing Callon’s authorized capital stock at the January 15 Special Meeting. As is clearly stated in the definitive proxy statement for the Special Meeting, Callon “has no present plans, agreements or understandings for the issuance of any of the additional shares to be authorized by the proposed amendment.” Any decision to issue shares in the future would be based on careful consideration of Callon and its shareholders’ best interests.
“Contrary to the assertions made by Lone Star, Callon has sold equity only three times since 2003, one of which was a preferred offering that had no dilutive impact. The Company’s record of prudent equity offerings has been recognized by ISS and Glass Lewis, leading independent proxy advisory firms, with each firm issuing favorable recommendations for the Company’s share authorization proposal at the January 15 Special Meeting. In making its recommendation, ISS stated: ‘Given that the proposed increase is below the allowable threshold and there are no significant concerns regarding the company’s past use of shares, a vote FOR this proposal is warranted.’
“As previously announced, Lone Star has filed notice to nominate two candidates to stand for election to Callon’s Board of Directors at the 2014 Annual Meeting. The Callon Board will consider Lone Star’s nominations in due course and will present details regarding the Board’s recommended slate of director nominees in the company’s definitive proxy statement and other materials, to be filed with the Securities and Exchange Commission and mailed to all stockholders eligible to vote at the 2014 Annual Meeting, which has yet to be scheduled.”
J.P. Morgan is serving as the Company’s financial advisor, and Wachtell, Lipton, Rosen & Katz and Haynes & Boone are serving as legal advisors.
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