Thank you to the board and management who effort tirelessly to drive value for shareholders.
Dear Thrift Savings Plan
Proposals Due by 6/9
At page 8, “What is the deadline for receipt of stockholder proposals to be presented at the next annual meeting of stockholders?”
In order for any stockholder proposal submitted pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to be included in the Company’s Proxy Statement to be issued in connection with the 2023 Annual Meeting of Stockholders, such stockholder proposal must be received by the Company no later than June 9, 2023. Any such stockholder proposal submitted, including any accompanying supporting statement, may not exceed 500 words, as per Rule 14a-8(d) of the Exchange Act. Any such stockholder proposals submitted outside the processes of Rule 14a-8 promulgated under the Exchange Act, which a stockholder intends to bring forth at the Company’s 2023 annual meeting of stockholders, will be untimely unless it is received between July 19, 2023 and August 18, 2023 in accordance with our bylaws. Any changes to such dates will be disclosed in our periodic reports on Form 10-Q or Form 10-K, or current reports on Form 8-K, filed with the SEC. Any such request should be directed to the Company’s Secretary at 1700 Pacific Avenue, Suite 2900, Dallas, Texas, 75201 or (214) 969-5530. In order for stockholders to give timely notice of nominations for directors, other than those nominated by the Company, for inclusion on a universal proxy card in connection with the 2023 Annual Meeting, notice must be submitted no later than September 17, 2023 and include all of the information required by Rule 14a-19 under the Exchange Act.
On November 16, 2022, the stockholders of Texas Pacific Land Corporation (the “Company”) voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation, providing for the declassification of the board of directors (the “Declassification Amendment”). The Declassification Amendment became effective upon the filing of a Second Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware on May 18, 2023.
You love to see it. Shareholder forced governance come to life. Gabi Gliksberg was a force here. Let’s get him working on term limits in Congress now.
Once the current terms of the individual board members are complete they each roll to a one year election cycle. New carrots and new sticks.
The following notes were sent to me by an investor who attended the meeting today. Many thanks to him for being so thorough and objective.
Only item on agenda was Prop 4 – voting opened for anyone to change votes – only one stockholder present requested ballot to change vote. Voting was closed and it was announced that results would be announced at the conclusion of the lawsuit.
It was reinforced that the lawsuit was solely about the stockholder agreement and not the merits of Prop 4. If TPL wins the votes would revert to in support of the board. If TPL loses the lawsuit then Prop 4 would fail.
I asked after the meeting what was the plan if it failed and Barry indicated there was none at this time.
Barry (meeting chair) did open up the floor for questions and discussion on Prop 4 and everyone had opportunities to ask questions. No one was shut down. There were some questions relating to the litigation they could not answer (understandable). There appeared to be mutual frustration from all about the cost of the lawsuit.
2022 meeting was adjourned and closed. Longest meeting ever!
If you walked into the room and did not know anything about the litigation or dispute on Prop 4, you would never expect all the discombobulation we have gone through. I believe most folks would believe as I do, the meeting and Q&A after were very professional and informative.
Valuation & Stock Price
Management acknowledged that TPL trades at significant premium and its valuation is a factor of an assortment of things including future value of existing and future well sites, cash flow, etc…
There was some discussion about expected life span of Permian Basin and well performance.
There was also discussion about the mechanics of making S&P 500 or 400. The general thought seemed to be we are right on the Cusp. Discussion related to the process, the mix of companies, market disappointment we didn’t make the cut last time.
Lower oil prices as well as the litigation were also acknowledged as putting downward pressure on stock price.
TPL has no debt and no debt facility. Management has the stated position (from the comments I heard) that using equity is better than debt. They also shared that there are costs for having debt faculties even if you don’t use them.
Management position was that issuing of treasury shares above and beyond the stock split was not dilutive. Treasury share authorization was to be able to quickly respond to acquisition opportunities and that the net effect of the assets purchased would be a wash vs shares issued so that no dilution would occur.
Having the Treasury Stock approved and available makes it easier to secure acquisitions. Management’s opinion is that having to get stockholder approval to do an acquisition after a deal is signed was not a good way to do it (my words) as the time it takes to get it approved and the uncertainty of approval would make potential acquisition targets less willing to engage TPL.
They stated there were no serious discussions or acquisition targets at the moment but they were out looking for opportunities.
Concern is that it takes 4 months to issue shares and if they came across a deal, they felt that the delay in issuing shares for an acquisition along with uncertainty that the additional shares would be issued would hamper ability to successfully bid on opportunities that present themselves.
I asked about water business and Board expressed frustration at the rumors that it was not making money. It is making about $170 million a year which more than pays for total TPL overhead of $80 million and still provides significant margin. This being the case I can certainly understand the frustration that has been observed when they get asked about overhead costs.
General Administrative Costs
They addressed that the operations now are much more involved than years back with the need for auditors and support staff just to manage the administrative tasks related to the larger amount of activity (wells, solar farms, etc…) on TPL land.
Currently TPL has about 40,000 shares in treasury (from buy backs) and just a bit under $500 million in excess cash (above and beyond what they need for working capital which they like to keep at $100 million)
There was some discussion on real estate policies and how they were managing it. As a real estate guy I found this to be spot on.
Conclusion & My Quick Thoughts
Overall, I think Chair and Management handle themselves very well and professionally in contrast to what I expected and apparently in contrast to previous meeting which I was not at. Someone who had been at previous meeting shared similar observations.
Management did seem to be very seasoned and although they used buzz words, formulas and phrases, I understood most of them. This impasse may be more about how the Board & Management communicate to shareholders than actual policy.
I hope that once we are done with this matter, everyone can regroup and come up with a clear plan that all can buy in on.
Meeting Still Open? Closed?
Prop 4 tally looks a bit worse than what we heard at the trial. Very unpopular among those that didn’t lean on proxy advisers.
Anyone paying attention hates #4. The board doesn’t care. They told you that again today.
Is it happening?
Is it open?
Is there a zoom link?
If anyone writes to the company and gets a response, can you share it here?
You really have to feel for the five previously unaffiliated directors. They got caught up in a big mess.
At this point, it’s safe to say that management has no reservations about spending shareholder money and (if history tells us anything) is likely ramping up on more spending (lawyers, PR, crisis consultants, etc) to try to make this agency problem larger. They appear to be at the point of no return. The only way out is to keep going.
Unless the Fab 5 wakes up and takes action. Inspired by their fiduciary duty to serve the interests of shareholders, the Fab 5 could wake from its slumber and make things right.
Or they could roll over and collect their paychecks and RSUs.
Tough decision to be sure.
What would you do?
Lion’s Open Letter
Lion Long Term Partners LP
May 11, 2023
Open Letter to Proxy Advisors and
To Stockholders of Texas Pacific Land Corporation
Dear Fellow Stockholders and Proxy Advisors,
On April 28th, following the release of the transcript of the April 17th trial hearing in Delaware Chancery Court, we wrote to Glass Lewis, Institutional Shareholder Services and Egan Jones (the “Proxy Advisors”) urging them to review their recommendation to vote “For” Proposal 4 (to amend the Company’s Certificate of Incorporation to increase by sixfold the number of authorized shares of common stock of the Company) at the adjourned 2022 Texas Pacific Land Corporation (“TPL” or the “Company”) Annual Meeting, to be held May 18, 2023 solely to consider Proposal 4. We also wrote to The New York Stock Exchange urging them to review their classification of Proposition 4 as “Routine”.
Yesterday Glass Lewis announced that it has changed its recommendation with respect to Proposal 4 to “Against” and we urge the other Proxy Advisors to review their case files and Glass Lewis’ detailed explanation of its change in position and follow Glass Lewis in recommending an Against vote on Proposal 4, and we urge the Stockholders of the Company who have voted For Proposal 4 to reconsider their position.
In its May 9 update of its analysis of Proposal 4, Glass Lewis explains its change of recommendation as based on its review of the documents filed in the Delaware Chancery Court litigation initiated by the Company against the “Investor Group” of the Company owning some 21% of the Company outstanding common shares, and TPL’s April 25 supplemental proxy materials. (Lion Long Term Partners is not a member of the Investor Group.)
Glass Lewis noted that the Investor Group submitted proxies for the 2022 Annual Meeting to vote against Proposal 4, and that at the Annual Meeting management had obtained favorable votes from only 35.2% of the outstanding common shares, well short of the simple majority required for approval of Proposal 4.
Glass Lewis further noted that the position of the Investor Group is that the Company should be governed as it has for most of its 135-year history operating as a liquidating trust vehicle with no ability to issue new shares, let alone for the purpose of pursuing external acquisitions, and that, if approved, Proposal 4 would give management of the Company many billions of dollars’ worth of unissued Company stock, effectively giving the Company a blank check to dilute stockholders through acquisitions with stock and equity compensation grants to management.
In its highly perceptive nine paragraph analysis Glass Lewis argues strongly that Stockholders should vote against Proposal 4 and it noted that Stockholders who have previously cast votes in favor of Proposal 4 still have the ability to switch their votes to AGAINST, which Glass Lewis now advises they do.
We do too.
Stephen Nicholas Walker
York GP Ltd.
General Partner of Lion Long Term Partners LP
Do the Right Thing
14a: Yep, They Flipped
After the close of business on May 9, 2023, Texas Pacific Land Corporation (the “Company”) was informed that Glass, Lewis & Co. (“Glass Lewis”) updated its analysis and changed its voting recommendation for Proposal 4 with respect to the Company’s 2022 annual meeting of stockholders. Glass Lewis has changed its voting recommendation on Proposal 4 from “for” to “against”.
Given this development, I imagine a sensible and rational management team would 1) rescind proposal #4, 2) close the 2022 meeting, and 3) immediately cease all litigation. I could also envision rational independent board members urging their management team and top of board to make things right.
Let’s not hold our breath.
Glass Lewis Flips on #4?
Will the company have to inform of us this if it is legitimate?
Derrick Whitfield, Analyst:
Perhaps one last if I could, just with respect to your trial versus Horizon Kinetics, what should we expect from the post-trial briefing schedule, meaning, I’m not asking you to project it outcome, but does a favorable outcome allow you to advance proposal for assuming you have a shareholder approval?
Tyler Glover, President and Chief Executive Officer:
Say the last part of that question one more time, Derrick. Sorry.
Derrick Whitfield, Analyst:
Sure. So with respect to the decision that comes out of the post-trial briefing schedule with Horizon Kinetics, what should we expect from that. And by that, I mean I’m not asking you to project an outcome of the trial, but does a favorable outcome allow you to advance proposal for, assuming you have shareholder approval?
Tyler Glover, President and Chief Executive Officer:
Yes, that’s correct.
Derrick Whitfield, Analyst:
Okay, terrific. That’s all from me, guys. Thanks.
Thank you. The next question comes from Hamed Khorsand from BWS Financial. Please proceed with your question, Hamed.
Hamed Khorsand, Analyst:
Good morning. The first question I had was on just the legal expense line, is that an accrued expense? What should we expect in Q2? And is that a normal number, I mean it seems quite excessive?
Chris Steddum, Chief Financial Officer:
Hey Hamed, that is an accrued expense. And, look, we really can’t comment on expectations of what the spend maybe in the future. And so that’s kind of where it’s at right now.
Hamed gets it…
Q1 Earnings Comment Thread
Revenue down -0.7% vs same quarter last year. Expenses up 80%. ($41.4MM vs $23.0MM)
$16.6MM in legal fees. ($2.16/share)
$6.7 million of common stock repurchases.
#ugly #poorstewards #agencyproblem #greed
Leave your observations in the comments.
PS: To my sellside analyst friends – If expenses aren’t your first question on the call, you need to find another job or admit that the one you have is a farce.
Mr. X Writes Again!
TPL Blog Friends –
Thank you for your invaluable feedback.
After reviewing that feedback and consulting with experienced counsel, the current consensus is to hold action until May 18th.
May 18th is more than just the date to close the meeting. It is the date for the independent directors to pull the curtain on the circus.
To the directors reading this Blog: Prop Four demonstrated the will of shareholders. Any director voting to continue litigation after May 18th will have solidified their contempt for the majority of shareholders.
Counsel indicates several actions I can take independently to help “free” HK & SV, allowing them to vote as they see fit should the meeting not conclude as scheduled.
Thanks to all of you for helping to support our common goal – maximizing value for each TPL shareholder. You’re a sharp-witted, sharp-elbowed, rowdy, and cantankerous lot of troublemakers. As terrible as this situation is, I am proud it has helped me get to know many of you. I believe in the future of TPL and take pride in standing alongside you as fellow shareholders.
“Mr X” was a monicker that the TPLT Blog cooked up, but I will embrace it for now.
– Mr. X