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 