Deemed Vote in Favor (8-K)

tpltblogger17 Comments

Press release

8-K

As previously disclosed, once a final order is entered and an amended charter is filed, the Company intends to use a portion of the newly authorized shares to affect a stock split of the Company’s common stock in the form of a stock dividend, and the Court has conditioned the Share Authorization Proposal on such a stock split. In addition, the Share Authorization Proposal increases the number of authorized, unissued shares of common stock.

A split unlocks the authorized shares which could potentially be used to dilute the voting rights of current shareholders by 50%. I have no idea on timing but c-suite and modern corporate board incentives (empire expansion, comp expansion, ego, the thrill of the deal, boards prioritizing management over shareholders to get other seats) would have me guess that it is a top priority. Things shareholders care about (ROE & ROA maximization, margin expansion, return of capital, share price expansion) are lower on the priority list.

IIRC, transactions below 20% dilution can be done without shareholder approval. All transactions (I think) need board approval.

17 thoughts on “Deemed Vote in Favor (8-K)”

    • The split will not be dilutive. A 3-1 split takes shares from 7.7mm to 23+mm. The authorization is for 46mm odd shares. So 50% more. If any of those shares past the split are used, dilution happens.

      Liked by 1 person

      • Technically, a split will not cause dilution. But, if along with the split, (using a 3:1 split for instance),there is an increase in authorized shares greater than required to maintain the same percentage of authorized but unissued shares that existed prior to the split, then these unissued shares can be used for other purposes beyond the split.
        I favor a split only to the extent that, post-split, TPL should have more market makers and greater liquidity.
        If management and/or the Board make unwise decisions using any of the authorized but unissued shares then, yes, there is the possibility/ likelihood of dilution especially if whatever is done with the “extra shares” do not earn the same ROIC (return on invested capital) as the presently outstanding shares. In my mind, it would take a truly unique acquisition to prevent some element of dilution from occurring. Were management to award themselves additional shares over and above their current percentage ownership in the company, that would be dilutive without question.

        Like

  2. How much anyone want to bet we start seeing a series of <20% issuances to fall under the threshold of Board approval? We can only wonder what power/influence MS and EO will have to stop that runaway train.

    If management is smart (slim chance) they will really try to maximize the impact of the 3-1 split for the investor community, before they go about their scheme with the rest of the autthorized shares.

    Like

  4. The court opinion indicates on Page 11 “In February 2022, the Board formed a special committee to consider potential acquisitions (the
    “Strategic Acquisitions Committee”). Over the next ten months, management and the Strategic Acquisitions Committee considered eighteen different transactions, none of which resulted in a binding offer or signed agreement. JX 598 at 6–11. The two largest transactions were the potential asset purchase from Oxy and a potential merger with Brigham Minerals, Inc. (“Brigham”). [Page 11]

    “Finally, the Company sought to address the Proxy Statement’s failure to reveal the existence of the Strategic Acquisitions Committee. The supplemental disclosure stated:

    As the Investor Group also stated publicly during the above-referenced
    trial, the Company has an ad hoc special committee (the “Ad Hoc
    Strategic Acquisitions Committee”). On February 11, 2022, the Board
    unanimously approved the formation of the Ad Hoc Strategic
    Acquisitions Committee. The Committee has no power to approve any
    potential transaction, and instead was created to review, analyze and
    assess potential acquisitions and make one or more recommendations to
    the Board regarding any such potential acquisitions. Directors
    Duganier, Epps, Kurz and Best serve on the Ad Hoc Strategic
    Acquisitions Committee; each Board member has attended at least one
    meeting of the Committee; and any member of the Board may attend
    any meetings of the Ad Hoc Strategic Acquisitions Committee or any
    other committee of the Board, absent any potential conflicts. Since its
    formation, the Ad Hoc Strategic Acquisitions Committee has not
    recommended any potential acquisitions that would involve the issuance
    or use of stock to the Board for approval. As a matter of policy, the
    Company does not disclose ad hoc committees of its Board, unless
    required by [the federal securities laws] or other applicable law, and
    expects to continue that practice in the future.” [Page 20-21]

    Like

  5. Again, we all appreciate the Blogger giving us this format.

    I assume it is anybody’s guess when the split will actually happen????

    Liked by 1 person

    • He’s only got to face the voters in 2025. He can dilute you plenty before then. All of the incentives are for the members who DON’T want to be under the authority of the large shareholders (pretty much all of them) to dilute.

      Liked by 1 person

  7. Agree. This poses some very significant risks for TPL shareholders. My guess is that the two new board members – who have NO SHARES despite years supposedly building careers in the space – will find that expanded revenues pay for higher directors fees, and that it is much easier to be rewarded with equity comp if shares can be diluted.

    A more robust slate of directors will be required next year – at least more directorships should be up for a vote.

    Liked by 1 person

    • A stock dividend is not a taxable event. It does not result in any transfer of assets (consideration) to shareholders or reduction of shareholders’ equity, it’s merely a reshuffling of categories within equity. Bookkeeping.

      It does reduce cost basis per share, but this is just mechanical.

      Liked by 1 person

  9. looking at the inventive compensation, it appears that a good bit is tied to FCF per share both in the short-term and cumulative long-term. I would think that this structure would hopefully stop mgmt from doing anything wildly dilutive because this would only be hurting themselves or am I missing something? I realize ideally, they just do nothing and instead increase repurchases/dividends etc… but would this not at least give them some guard rails if they were to do some acquisition? Thanks for any help here.

    Liked by 1 person

  10. How likely is it management will go through with potential M&A? Will Murray and Oliver have any recourse to stop them?
    Seems like management will be dealing with a s**tstorm if they close a capex heavy, low roic deal. Maybe they are so arrogant that they don’t care. 🤷‍♂️

    Liked by 1 person

    • What’s the goal? Isn’t the goal is to dilute present shareholders so that they cannot control the board? If so, you have the problem that the new shareholders are quite happy with their circumstances.

      And probably 7 of 9 directors are in favor of M&A because they don’t want to be the handmaidens of HK and SoftVest.

      Like

  11. I think the plan dies with Barry and his grand scheme of screw-the-shareholders so I can have epic comp on the back of, cough, epic M&As. Tyler feels like the Phil Green of Barry’s set-up (see Kevin Pollack in Casino for details). We shall see.

    Like

  12. The court opinion gives us some useful information that we can use to try and understand TPLs Management and BOD thinking WRT to acquisitions. The two big ones mentioned are OXY and Brigham Minerals. Researching Brigham Minerals reveals they were merged with SITIO Royalties Corp at the end of 2022 in a 1.5 Billion purchase [Bloomberg article that I can’t access].. Page 11 of the opinion indicates “The two largest transactions were the potential asset purchase from Oxy and a potential merger with Brigham Minerals, Inc. (“Brigham).”

    Page 12 “The Brigham transaction suffered a similar fate. “In July 2022, the Company submitted a non-binding offer to acquire Brigham for stock worth $1.746 billion. JX 1034 at 2–3. In September, Brigham announced a transaction with a competing bidder. JX 420. Barry told the directors other than Oliver and Stahl that the Company’s bid was “on target” but failed because the Company was not authorized to issue stock. JX 422. He asked whether it was “worth considering a competing bid for Brigham if we get the stock authorization?” Id. The consensus was that the “ship has sailed” and the deal was lost. Id.”

    So we now know they were looking at at least one merger transaction with ” Brigham Minerals is a company that acquires and actively manages a portfolio of mineral and royalty interests in the core of some of the most active, highly economic, liquids-rich resource basins across the continental United States….” at a cost of $1.746 billion. Does anyone care to chime in with what they know about Brigham Minerals other than our new Board Member “Chief Executive officer & PARTNER. Robert Roosa is our Chief Executive Officer and Partner. Rob was President of Brigham Minerals since inception in November 2012, and Chief Executive Officer from July 2017 and as a Director from May 2018. “

    Like

Comments are closed.