Lone Star Value Issues Personal Letter To Antares Shareholders
Notes Recent Moves by Antares Show the Urgent Need for Board Enhancement
Believes CEO James Cruickshank Runs the Company for His Own Benefit
Commits that New Board, if Elected, Will Buy Back Stock to Offset Dilution of
Recent Convertible Debt Issuance
NEW YORK, June 27, 2014
NEW YORK, June 27, 2014 /PRNewswire/ -- Lone Star Value Investors, LP ("Lone
Star Value", "we", or "us") is a significant shareholder of Antares Energy
Limited (ASX: AZZ) (AZZEF) ("Antares" or the "Company") and is seeking to
enhance the Board of Antares (the "Board") through the election of five new
independent directors and the removal of two employee directors at a General
Meeting of Antares. Today, Lone Star Value issued a personal letter from its
founder, Jeffrey E. Eberwein, to the shareholders of Antares.
Dear Fellow Shareholders:
I wanted to take this opportunity to tell you about myself, our firm, why we
decided to invest in Antares, and why we believe it is so urgent to change
Antares' Board at this time. Although I founded Lone Star Value last year and
Antares is our first investment in Australia, I have invested in Australia
throughout my career and plan to do so for a long time to come. I am
originally from Dallas, Texas and have worked with, or invested in, energy
companies for 23 years. As a senior portfolio manager at Viking Global and
Soros Fund Management, I invested significant amounts of capital globally with
a particular emphasis on resource companies. Lone Star Value plans to be a
long term investor in Australia and in Antares. In short, we're here to stay.
We first began buying Antares stock because we saw a huge gap between the
value of its assets and the price at which its shares were trading. We
believe this gap is mainly due to Mr. Cruickshank running the Company as his
personal fiefdom at shareholders' expense. After analysing the Company and
speaking with many frustrated shareholders, we committed to a significant
investment and hands-on involvement by enhancing Antares' Board. We believe
we can begin to close Antares' value gap through our proposed enhancements.
Our goal is to maximise Antares' stock price over the long term – we are not
here to make a quick buck and leave the Company in a worse position.
Mr. Cruickshank recently stated that he "listens to shareholders and his
mobile phone number is at the bottom of ASX announcements". We believe being
pro-shareholder is about much more than giving out a mobile number. Being
pro-shareholder is about managing the Company for the benefit of its
shareholders and always placing their interests first - this is what it means
to be a fiduciary. If Mr. Cruickshank truly places shareholder value and
rights first and foremost, why did he unilaterally cancel the US$300 million
asset sale after Antares' shareholders overwhelmingly approved it at January's
extraordinary general meeting? Mr. Cruickshank claims he subsequently (and
rather abruptly) gathered new positive information on these assets leading him
to cancel the sale, right after the vote was conducted. Shouldn't
shareholders have been given the full information Mr. Cruickshank claims led
him to cancel the sale? Our experts have examined all public disclosure made
by Antares during this period and believe there is no new material news.
Shouldn't shareholders have been allowed to vote on whether or not the sale
should go through in light of any material changes rather than Mr. Cruickshank
deciding this for us? Also, and most importantly, it appears Mr.
Cruickshank's ultimate plan was to keep the cash at Antares so he could
reinvest it - he NEVER had a plan to sell the Company outright or to sell the
assets and return any cash to shareholders. We believe this is why Antares'
stock price only rose to a high of $0.58 per share after the asset sale
announcement in June 2013 versus the $1+ value per share implied by the
theoretical US$300 million proceeds. In our view, a truly
shareholder-oriented CEO would have completed the sale for US$300 million,
paid off the Company's debts, and then returned the balance in cash ($1+ per
share in this case) to the shareholders. We believe that we, as shareholders,
are capable of deciding what is in our own best interest when material
transactions are involved. We find it VERY telling that Mr. Cruickshank never
offered to let shareholders decide if they wanted the cash returned to them at
the January shareholder meeting. We have come to the conclusion that the
right way to think about Antares -- as it is currently structured -- is that
it isn't really a proper oil and gas company – rather, it is Mr. Cruickshank's
fully-controlled, personal private equity fund. He buys and sells assets, but
shareholders never see any cash. Mr. Cruickshank claims Lone Star Value is
seeking control without paying a takeover premium. On the contrary, we are
merely trying to restore Antares' Board to its proper balance – a Board that
works for the shareholders and with actual shareholder representation rather
than composed of management and working for management. Why should Mr.
Cruickshank have, what appears to be, 100% personal control of Antares with
his 4% ownership? Lone Star Value is seeking to enhance Antares' Board NOT
for the purpose of personal control but rather solely for the purpose of
maximising value for ALL shareholders. We are confident that Antares will
never achieve its full potential and our shares will never reach their full
value under the current structure of near full personal control by Mr.
Antares' Board needs to be enhanced to serve two goals:
1) to create a new Board which truly represents ALL shareholders and places
their interests first and foremost; and
2) to add the talent required to help Antares realise its full potential, most
likely by forming drilling joint ventures and eventually selling all or parts
of the Company.
We strongly believe Antares' current Board is incapable of achieving either of
these goals, which is why we reluctantly came to the conclusion that the only
way these goals would ever be realised is through significant Board changes.
As to our candidates, except for me, they are all completely independent from
Lone Star Value and have no other agenda but to serve as shareholder
representatives on the Board. Aaron Kennon is the only candidate I have known
for a long time. He is standing for election because his firm has been a
long-suffering Antares shareholder and he and his team have a long
relationship with Antares and Mr. Cruickshank. The other three candidates,
Mr. Sharwood, Mr. Fairhurst, and Mr. Hyman, are all recent acquaintances of
Lone Star Value and were chosen for their talent and the experience they will
bring to Antares Board for your benefit. None of these four candidates have
any business relationship with Lone Star Value and NO commitment to vote in
lock-step with me. These candidates were referred to us and came highly
recommended by people we greatly respect in the oil and gas industry. If
elected, this new Board at Antares will represent a major upgrade in terms of
the talent, connections, and judgment required to take Antares to the next
level. In short, Mr. Cruickshank deserves credit for taking Antares from a
penny stock company to its present size, but he desperately needs help,
whether he wants it or not, for Antares to reach the next level – and we're
here to help.
Mr. Cruickshank answers many important questions with his retort "look at what
the stock price has done since I became CEO in 2008", but this is the wrong
time period. We do give Mr. Cruickshank credit for growing value from 2008 to
2011, but since that time, Antares has gone off the rails and Mr.
Cruickshank's true goals and motivations have become apparent. From 2008 to
2011, Antares was not focused on the Permian Basin. In 2011, Antares took
proceeds from the sale of its Eagle Ford assets in South Texas and bought
assets in the Permian Basin of West Texas. Unfortunately, oil and gas
production volumes from the assets Mr. Cruickshank acquired have declined over
the last three years while overall Permian Basin output has doubled. Sadly,
Antares stock has massively underperformed its Permian Basin peer group since
it became a Permian Basin pure play in 2011. Something isn't right when
production declines and a company massively underperforms its peer group. We
believe Mr. Cruickshank needs help. Why is Mr. Cruickshank fighting our help
through Board enhancements so vehemently? Could it be to protect his position
and his lifestyle? On the Company's money, Cruickshank chose to live in an
expensive neighbourhood in Dallas. His home in Dallas has a market value of
approximately $3 million and has almost 7,000 square feet – hardly necessary
for someone who said he "answered the call to serve" and begrudgingly moved
his family overseas for the sake of Antares, as Mr. Cruickshank's latest
letter proclaims. Why is this expense necessary for shareholders to bear?
Most other Permian Basin operators are headquartered in the much less fancy
city of Midland, Texas, which is much closer to Antares' assets. We believe
Mr. Cruickshank is fighting Board enhancement due to the perceived threat to
his lavish lifestyle at shareholders' expense.
Operating and drilling decisions are of tantamount importance to an oil and
gas company like Antares. Antares' Southern Star field needs to be developed
with horizontal wells, not vertical wells. Horizontal wells are very
expensive and very complicated and Antares SHOULD NOT drill these wells on its
own without a true technical team. Our plan is to find an industry partner to
fund and drill these horizontal wells. After the potential of Antares' assets
has been proven through horizontal drilling, then its assets can be sold for
maximum value. Over the long term, the natural and more appropriate owner for
Antares' assets, once proven, would be a larger company with lower cost of
capital and greater operating and manufacturing expertise. Who do you think
is more likely to eventually maximize shareholder value and sell the Company
to a strategic buyer – a large shareholder serving on the Board or a CEO who
wants to preserve his lifestyle and position?
Antares' recent (June 2014) announcement of a $19.5 million note issuance is
yet another sad example of Mr. Cruickshank needing help in his capital markets
activity. These notes have a high 10% interest rate and dilute current
shareholders' upside via their conversion feature. Lone Star Value's
candidates have the contacts and expertise required to dramatically lower
Antares' cost of capital. Callon Petroleum, for example, recently signed a
bank deal with an interest rate of less than 4% after our involvement and
assistance to lower its cost of capital. We hope to do the same for Antares.
In addition, we commit that, if elected, we will put up for a Board vote the
use of the $19.5 million in proceeds from the recent note issuance to buy back
Antares common shares to offset the dilution incurred by the conversion
feature of the new 10% convertible notes.
Previously, we publicly urged the current Board of Antares not to undertake
any material transactions prior to the election of directors at the General
Meeting to ensure that material decisions regarding the future of Antares are
made by directors with a clear mandate from shareholders. I believe the
election of directors at the 22 July General Meeting will have an enormous
impact on the future of Antares, and call upon James Cruickshank and the rest
of the Board to cease any material actions until the shareholders have spoken.
Two additional notes of mention as to why Antares needs a real Board for
proper oversight: First, we believe that Mr. Cruickshank personally attempted
to stifle the voice of Antares' USA shareholders by telling them not all
shares could vote at the upcoming 22 July General Meeting if they held AZZEF
shares. One share, one vote is a long-held shareholder right. It doesn't
matter if these shares are held by an Australian who purchased them on the
Australian exchange or by an American or Canadian who purchased them on a US
exchange. Shareholder voting rights are sacrosanct. Either Mr. Cruickshank
doesn't know this, which means he lacks capital markets expertise, or he does
know it and knowingly attempted to confuse US shareholders into not voting.
Unfortunately, this is not the first time Mr. Cruickshank has actively sought
to tell US shareholders they were ineligible to vote. Second, Mr. Cruickshank
purchased for his personal account 125,000 shares of Antares stock in June
2013 right before the announcement that Antares was selling its assets for
US$300 million, which caused a one-day 70% jump in the stock. Think about
this for one moment: our CEO used company information in order to make
personal purchases from existing Antares shareholders who didn't have the
information he had. This behaviour is the very definition of self-dealing.
It shows either ignorance of the rules or an intentional and flagrant
violation of those rules – in either case, this example once again shows
Antares needs a competent Board which is independent of management to ensure
proper oversight of the CEO.
18-6-13 CEO purchases 50,000 shares at $0.325
19- and 20-6-13 CEO purchases 50,000 shares at $0.325
24-6-13 CEO purchases 25,000 shares at $0.30
26-6-13 Asset sale announcement, stock goes to $0.48
We urge all Antares shareholders to read carefully the materials that Lone
Star Value has mailed to them as those materials contain important
information. We call on all Antares shareholders to vote on the blue and
white proxy card to improve the Board of Antares.
For further information please visit our website, www.antaresvalue.com.au, or
call our shareholder information line, 1300 889 468 (from within Australia) or
+61 2 8022 7902 (from outside Australia).
Jeffrey E. Eberwein
Founder and CEO
Lone Star Value Management, LLC
Proxy voting enquiries please contact:
+61 2 8022 7911
Media enquiries please contact:
Cannings Corporate Communications
+61 418 708 663
 Source: Change of Director's Interest ASX filings from 19/6/2013,
24/6/2013 and 25/6/2013.
SOURCE Lone Star Value Investors, LP
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