CVR Energy Should Put Itself Up for Sale, Icahn Tells CEO
CVR Energy Inc. (CVI), the oil-refining company that was taken public in 2007 by Goldman Sachs Group Inc. (GS), should put itself up for sale to profit from higher gasoline prices, billionaire investor Carl Icahn said.
Icahn, CVR’s largest shareholder, told Chairman and Chief Executive Officer Jack Lipinski there are three to four potential buyers, according to a filing today with the U.S. Securities and Exchange Commission. Valero Energy Corp. (VLO), Tesoro Corp. (TSO), Marathon Petroleum Corp (MPC). and HollyFrontier Corp (HFC). may be interested, Eliecer Palacios, an energy sector specialist with Maxim Group LLC, said in a telephone interview.
CVR, based in Sugar Land, Texas, may sell for as much as $2.94 billion, a 25 percent premium over yesterday’s close, Sam Margolin, an analyst with Global Hunter Securities LLC in New York, said in a telephone interview today. The refineries are worth more because they can access cheaper crude being produced from shale rock formations in emerging U.S. oil fields, he said.
“The refineries are so advantaged, there would definitely be private buyers who would put up more of a premium than the public markets,” said Margolin, who rates CVR a “buy” and doesn’t own shares.
Spokesmen for Valero, HollyFrontier and Marathon declined to comment. Tesoro didn’t immediately respond to a telephone message.
CVR declined to comment on a potential sale. The company announced a plan yesterday to institute a dividend. The company and its board “remain focused on delivering further value to our shareholders in the future,” Steve Eames, a spokesman for the company, said in a telephone interview.
Icahn, known for investing in companies and agitating for strategic changes with management, holds a 14.5 percent stake in the company.
The company owns refineries in Coffeyville, Kansas, and Wynnewood, Oklahoma, capable of processing a combined 185,000 barrels a day. It also owns a majority interest in CVR Partners LP, which produces fertilizer.
CVR rose 2.5 percent to $27.62 at the close in New York. The company has gained 24 percent since Icahn’s stake was revealed last month. That rally may be a challenge for potential buyers, Palacios said.
Goldman Sachs and buyout firm Kelso & Co. bought CVR’s Kansas assets from Pegasus Capital Advisors LP in 2005, and took it public two years later. The Kansas plant and fertilizer mill was previously owned by Farmland Industries Inc., which filed for bankruptcy protection in May 2002.
The margin between oil costs and the price at which refiners like CVR sell fuel has risen 65 percent this year to $27.08, according to data compiled by Bloomberg. The so-called “crack spread” has widened as surging oil production in new shale fields has depressed prices relative to the global crude benchmark.
CVR’s shares don’t reflect “current high crack spreads,” Icahn told Lipinski yesterday, according to the filing. Icahn said shareholders would be better served by a sale.
The company’s relatively small size exposes shareholders to too much risk from volatile oil prices, Icahn said. A bigger company would be better positioned to use financial contracts to lock in commodity prices, he said.
CVR fell to a low of $17 on Nov. 25 as the gap between crude costs and fuel prices narrowed to $13.11, nearly a third of the $35.07 high it reached on Oct. 14, according to data compiled by Bloomberg.
Yesterday, the company announced its first quarterly dividend and said it planned to sell a portion of its investment in CVR Partners.
Shareholders may get as much as $1.80 a share from the CVR Partners sale, Chi Chow, a Denver-based analyst with Macquarie Group Ltd., said in a note yesterday.
“CVR Energy’s board has evaluated various financial and structural alternatives and believes these actions offer the best opportunity to enhance returns for shareholders in a reasonable time frame with minimal execution risk or structural impediments,” the company said in a statement yesterday.
CVR adopted a shareholder rights plan when Icahn’s stake was initially disclosed last month, saying its board would “protect against inadequate or coercive takeover attempts, or other tactics that might be used to gain control of the company.”
The provision, known as a poison pill, allows other holders to buy shares at a discount if an entity acquires more than 15 percent of the company without board approval.
Icahn also said he’s weighing whether to nominate his own candidates for the board by the Feb. 17 deadline.
CVR has hired Goldman Sachs and the New York law firm Wachtell Lipton Rosen & Katz as advisers.
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