Is Chesapeake Energy Corporation (CHK) Better Off Without McClendon?

The (McClendon) Effect

The good news for Chesapeake is that McClendon, who managed to dispose of assets worth $30 billion during since 2008, is now leaving the company. This is expected to strengthen the relationship between the board and shareholders, making it easy to pass constructive decisions. Many had feared that Chesapeake would struggle selling more fixed assets in the current campaign had McClendon stayed on.

One major example is the manner in which the stock reacted following the news of his resignation. The stock surged 11 percent, which indicated a positive expectation from investors, and increased confidence in the company.

Did They Play a Role?

The company’s major investors include value investor Carl Icahn, who reportedly owns about 7.5 percent of the company. Icahn is also known for his activist investment strategies, which include influencing board changes. When he bought a stake in the company in May 2012, Icahn suggested the replacement of four senior executives in the company.

Another major holder is value investor Daniel Loeb, whose stake is in the form of debt. Loeb’s Hedge fund, Third Point is one of the best performing hedge funds. The fund hit a new record in January, rising above $11.2 billion worth of assets under management, after it added $1.1 billion between Jan. 1 and Jan. 31. Reports suggest that Southeastern Asset management and Carl Icahn played a major role in McClendon’s departure.

Bottom Line

It remains to be seen whether the newly reconstituted board can go one step better than the initial team, whose reign ends with the departure of McClendon. Board tussles are never good for any company, efficiency comes to question. Chesapeake must raise the remaining $2+ billion from the sale of assets, which will reduce the tension on its balance sheet. The company recently received an upgrade from BMO Capital Markets following the news about  McClendon from Market Underperform to market perform with a price target of $24. Other firms also increased price target for Chesapeake to about $25.

The article Is Chesapeake Energy Better Off Without McClendon? originally appeared on Fool.com and is written by Nicholas Kitonyi.