Busy couple days!
Yesterday was the court date for the appeal. Couple quotes from a Bloomberg article last night (behind a paywall).
The company had a long history as a trust, and it wanted to convert to a Delaware corporation so it could “avail itself of the flexibility of the corporate form,” such as being able to issue equity, Thompson Bayliss of Abrams & Bayliss LLP said.
“Share authorizations were top of mind,” and the “ultra-sophisticated” shareholders who opposed a proposal to issue additional shares were aware of those discussions as well as their obligations, he said.
“They knew what they were doing when they traded stockholder-level influence for board-level influence in a form of agreement that’s quite common to settle proxy contests,” Bayliss said.
The investors argue the Chancery Court erred when in finding that they had traded away their voting rights on an action that “fundamentally changes the nature of everyone’s ownership” of Texas Pacific, said Christopher Duffy of Vinson & Elkins LLP, representing the investors.
The proposed share authorization is “absolutely recapitalization,” Duffy said, leading to some back-and-forth with the justices over the definition of the word. He argued the dictionary definitions of recapitalization favor the investors.
But Vice Chancellor J. Travis Laster, “instead of stopping at the dictionary definition and instead of finding that our interpretation fit neatly and unambiguously within it,” resorted to his “gut sense” of the word to rule against the investors, Duffy said.
Justice Gary Traynor said Laster’s opinion noted that the Supreme Court previously found that recapitalization “has no generally accepted meaning.”
“What are we to do with that?” he asked Duffy.
In other news, the 4Q earnings call took place this morning. https://seekingalpha.com/article/4672388-texas-pacific-land-corporation-tpl-q4-2023-earnings-call-transcript.
The transcript is a good read and Glover was well measured in his remarks. I think it is a positive step that the company is confronting the frustrations of investors.
The bad news (my interpretation) is that the company thinks the stock is rich. Management leans on “cash flow per share” as a key metric in evaluating capital allocation (and getting paid). In short (again, my interpretation), they think that this is the top of the mountain as far as O&G technology goes and that asset valuations will not increase. Instead, they are of the opinion that FCF can be grown by incremental deal making.
Investors in this company typically have a long time preference. The time preference of the C-suite appears low. It all makes sense. Careers have short spans and seats are hot. People want to get paid and create reasons to keep getting paid. I get it. Just don’t expect the stock to be a “compounder” with that mentality. The agency problem lives on.
The Texas Pacific Land Trust Investor 
Thank you for providing all the updates. You are doing a great work for all the investors.
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One takeaway from the earnings call, it is definitely worth reading.
“Our cash balance at year-end has grown to $725 million, as we’ve harvested cash flows
over the last couple of years during this period of relatively high commodity prices and
as we’ve held back on large procyclical spending.”
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The other gem is the risk statement: “If our amended and restated certificate of incorporation is amended to allow for the issuance of additional Common Stock, holders of our Common Stock could experience dilution in the future.”
Hey Board, even your management team thinks issuing stock is a risk. Management doesn’t care as doing deals helps to ensure they hit their bonus targets. But you, as board members should care, as your shareholders certainly do, or were you not awake during the last annual meeting.
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From the Annual Report Are you all aware of the Preferred Stock Gotcha?
If our amended and restated certificate of incorporation is amended to allow for the issuance of additional Common Stock, holders of our Common Stock could experience dilution in the future.
If our amended and restated certificate of incorporation is amended to allow for the issuance of additional Common Stock, holders of our Common Stock could be diluted because of equity issuances for proposed acquisitions or capital market transactions or equity awards proposed to be granted to our directors, officers and employees subject to any required vote of holders of our Common Stock under our amended and restated certificate of incorporation and amended and restated bylaws. We may issue stock-based awards, including annual awards, new hire awards and periodic retention awards, as applicable, to our directors, officers and other employees under any employee benefits plans we have adopted or may adopt, using newly issued shares rather than treasury shares as is currently our practice.
At our 2022 annual meeting of stockholders, our stockholders voted on a proposal to increase the number of shares of Common Stock authorized under our amended and restated certificate of incorporation. A dispute relating to the voting on this proposal was resolved by the Delaware Court of Chancery, which determined that the proposal was approved by stockholders. The decision is currently subject to an appeal, and, therefore, we have not yet taken any action to amend the amended and restated certificate of incorporation
In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more series of preferred stock having such designations, powers, preferences, privileges and relative, participating, optional and special rights, and qualifications, limitations and restrictions as the Board may generally determine in its sole discretion. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our Common Stock. For example, we could grant the holders of preferred stock the right to elect some number of the members of the Board in all events or upon the happening of specified events, or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that we could assign to holders of preferred stock could affect the residual value of our Common Stock.
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interest on cash balance for year was $31.5m (other income) and legal expense for year was $31.5m. coincidence?… or…
that’s $4/ shr in wasted eps.
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Continuing to trim. Extremely irritated at this management group. Not interested in funding their resume building deals.
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“This strategy worked for over 100 years to drive outsized returns, but I know better.”
So sad. The TPL we all loved is gone.
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The statements that the Board made sound as if they hired a PR firm that specializes in crisis management. Rather than actually put shareholders first, they give lip service.
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