Is it? Some thoughts on Proposal Four (P4) are below. The complete, unaltered, text of P4 is quoted at the bottom of the post. Please share your thoughts in the comments.
- The easiest observation is that we can’t tell what P4 really is yet. The blanks are still blank. If management really wants to do a stock split and nothing else, the TO number will be 3x the FROM number. Anything in excess of (TO – 3 x FROM) = management comp and M&A fodder.
- I’d like to be pleasantly surprised with a 3x number but I’ll take the over. Glover talks way to much about deals in quarterly calls for M&A to not be top of mind. $500MM (ballpark) in cash on the balance sheet but it doesn’t get you very far in deal land with WTI @ $83 and Brent at $90.
- Everyone (including the board) likes to get paid, so there is easy incentive for issuance there too.
- If you’re going to split an $1800 stock, why do it 3 to 1? What does $600 get you that $1800 doesn’t? Who gives them this advice? TPL has had daily share volume of 47k over the past 30 days. If they were part of the S&P500 that would place the ticker 7th from the bottom in terms of daily shares traded. If volume triples from here they would go from 7th to 32nd. Not a very big jump. TPL is much more relevant in daily dollar value traded (price x share); they rank middle of the pack compared to the S&P500. Clearly the needle mover here is straight share volume and clearly the 3 to 1 doesn’t get it done.
- Lastly, Stahl and Oliver don’t have to vote for it. A split (I think) qualifies as an extraordinary action. The stockholders agreement allows for S & O to vote independently. See pages 3 and 13.
In short, I don’t think you should vote yes on P4. 3 to 1 doesn’t get you anywhere in terms of price (still very high) or share liquidity.
One thing is for certain, any extra shares will dilute your stake.
If you want a split, call IR and ask them to:
- Increase the ratio. 18x or 36x seem more appropriate.
- Limit the authorization to SHARES NEEDED FOR SPLIT ONLY.
APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
The Board recommends that stockholders consider and vote in favor of the adoption of an amendment (the “Authorized Shares Amendment”) to Article IV of the Amended and Restated Certificate of Incorporation of the Company (the “Certificate”) that would increase the authorized number of shares of common stock of the Company, par value $0.01 per share, (the “Common Stock”) from 7,756,156 shares (as presently authorized) to [_________] shares. The Board has adopted the Authorized Shares Amendment, subject to stockholder approval, and declared it to be advisable and in the best interests of the Company.
Section 4.1(A) of Article IV of the Certificate, marked to show the Authorized Shares Amendment, is as follows:
(A) The total number of shares of stock that the Corporation shall have authority to issue is 8,756,156 [________] shares of stock, classified as:
(1) 1,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”); and
(2) 7,756,156 [________] shares of common stock, par value $0.01 per share (“Common Stock”).
Purposes of Increasing the Number of Shares of Authorized Common Stock; Potential Stock Split
In connection with the Corporate Reorganization, the number of authorized shares of Common Stock was fixed in the Certificate to be equal to the number of shares of the Trust (the “sub-share certificates”) that were outstanding as of immediately prior to the Corporate Reorganization. This was done in part to allow the newly-created Board to determine, in the future, whether to approve the authorization of additional shares of Common Stock through an amendment to the Certificate and to propose the same for approval by stockholders of the Company.
The Certificate currently authorizes the issuance of a total of 8,756,156 shares of stock. Of such shares, 7,756,156 are classified as Common Stock and 1,000,000 are classified as preferred stock. Pursuant to the Corporate Reorganization, on January 11, 2021, the Company issued and distributed 7,756,156 shares of Common Stock to all of the holders of the sub-share certificates as of immediately prior to the Corporate Reorganization.
As of September [__], 2022, there were [__________] shares of Common Stock issued and outstanding and no shares of preferred stock issued or outstanding. In addition to this number of shares of Common Stock outstanding, as of September [__], 2022, the Company had [_____] shares of Common Stock held in treasury, of which (i) [___________] shares of Common Stock were reserved for issuance for awards granted pursuant to the 2021 Incentive Plan, and (ii) [_________] shares of Common Stock were reserved for issuance for awards granted pursuant to the 2021 Non-Employee Director Stock and Deferred Compensation Plan (the “2021 Directors Plan” and together with the 2021 Incentive Plan, the “Incentive Plans”).
Unlike almost every company in the S&P 500 or 400, the Company does not have any authorized but unissued shares of Common Stock available for future issuances. The only shares of Common Stock that are available to the Company for future issuances are its limited treasury shares. The Company may use available treasury shares as it deems fit for new issuances of Common Stock, such as under the Incentive Plans, or as consideration for acquisitions (as further described below). The primary method by which the Company can acquire more treasury shares is by reacquiring outstanding shares of Common Stock through stock repurchases.
If stockholders approve the Authorized Shares Amendment, it would permit the Board to effect a potential 3-for-1 split of the Company’s Common Stock in the form of a stock dividend of 2 shares per outstanding share totaling [___________] (the “Stock Split”). Currently, the number of shares of Common Stock authorized, but not outstanding and not reserved for issuance for any specific purpose, is insufficient to effectuate the Stock Split. The increase in authorized shares will provide the Company with the ability to effect the Stock Split to lower the price per share of Common Stock to attract a broader investor base and increase stock liquidity. The Board has approved the Stock Split, subject to the Authorized Shares Amendment and there not being any material changes in the Company’s financial condition or results of operation or the market price for the Common Stock that would cause the Board to change its view on the desirability of effecting the Stock Split.
The Company could additionally use its ability to issue additional Common Stock for other purposes in the future, including: the sale of securities to raise capital; payment of consideration for acquisitions; payment of stock dividends; grants made to employees under new or expanded existing compensation plans or arrangements; and other corporate purposes. An increase in the number of authorized shares of Common Stock would also provide the Company with flexibility with respect to future transactions, including acquisitions of additional assets where the Company would have the option to use its Common Stock (or securities convertible into or exercisable or exchangeable for Common Stock) as consideration (rather than cash), financing future growth, financing transactions and other general corporate purposes. Any of such transactions, facilitated by the issuance of additional shares of Common Stock, could have the potential to benefit the Company and stockholders by, among other things, growing the Company’s business or assets, increasing stockholder value, or increasing the marketability and liquidity of the Common Stock.
Other than with respect to the Stock Split and under the Incentive Plans, the Company does not have any present intention to issue Common Stock in the immediate future. The submission of this Proposal Four is not part of any other existing plan of the Board to engage in any transaction that would require the proposed increase. However, the Company desires to have the flexibility to use Common Stock as consideration for the acquisition of additional assets. Authorized but unissued shares of Common Stock may be used by the Company from time to time as appropriate and opportune situations arise. The ability to issue additional shares would enable the Company to act quickly as opportunities arise and to avoid the time-consuming and costly need to hold a special meeting of stockholders in every case to seek stockholder approval for the issuance of additional shares of Common Stock. The Board believes that, in the future, occasions may arise where the time required to obtain stockholder approval might adversely delay or prohibit the Company’s ability to enter into a desirable transaction or deny it the flexibility to facilitate the effective use of its securities. Therefore, failure to approve this Proposal Four, in addition to prohibiting the Stock Split, could, in effect, prevent the Company from pursing strategic acquisitions.
Effects of the Authorized Shares Amendment
For the reasons discussed above, the Board believes that it is in the best interests of the Company to increase the number of authorized shares of Common Stock.
If this Proposal Four is approved by stockholders, the Company’s current Certificate will be amended to increase the number of shares of authorized stock of the Company to [_________] shares of stock, of which [________] shares would be classified as Common Stock. The additional, newly-authorized shares of Common Stock would be part of the existing class of Common Stock and, if and when issued, would have rights identical to the currently issued and outstanding Common Stock. The Authorized Shares Amendment would not affect the number of shares of preferred stock authorized.
The Authorized Shares Amendment would not change any of the rights, restrictions, terms or provisions relating to the Common Stock or any preferred stock that may be issued in the future. Under the Delaware General Corporation Law (the “DGCL”), stockholders of the Company will not be entitled to appraisal rights with respect to the Authorized Shares Amendment and will not have any preemptive rights with respect to the additional shares being authorized. No further approval by stockholders would be necessary prior to the issuance of any additional shares of Common Stock, except as may be required by law or applicable NYSE rules. In certain circumstances, generally relating to the number of shares to be issued and the identity of the recipient, the rules of the NYSE require stockholder authorization in connection with the issuance of such additional shares. Subject to Delaware law and the rules of the NYSE, the Board has the sole discretion to issue additional shares of Common Stock for such consideration as may be determined by the Board.
The issuance of any additional shares of Common Stock may have the effect of diluting the percentage of stock ownership of present stockholders of the Company. Furthermore, although the Board has not recommended the Authorized Shares Amendment in order to discourage tender offers or takeover attempts of the Company, the availability of more authorized shares of Common Stock for issuance may have the effect of discouraging a merger, tender offer, proxy contest or other attempt to obtain control of the Company.
If the Authorized Shares Amendment is adopted, it will become effective upon filing a Certificate of Amendment with the Delaware Secretary of State. The Board intends to cause such filing promptly following stockholder approval, but the Board nevertheless would retain the discretion under Delaware law, until such time, to not implement the Authorized Shares Amendment. In such case, the number of authorized shares would accordingly remain at its current level.
Effect of the Stock Split
If stockholders adopt the Authorized Shares Amendment and the Company subsequently undertakes and consummates the Stock Split, the amount of the Company’s Common Stock account as reflected in the Company’s consolidated financial statements will be increased to reflect the additional shares issues at a par value of $0.01 per share and the amount of the additional paid-in capital account will be reduced by the same amount, with no overall net effect on total stockholders’ equity. Further, pursuant to the anti-dilution adjustment provisions of the Incentive Plans, proportionate adjustments would be made to the number of shares of Common Stock that remain available for issuance pursuant to such plans, as well as the outstanding awards under such plans.
THE BOARD RECOMMENDS A VOTE “FOR” APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK