Transocean Ltd. shareholders voted in favor of one of billionaire investor Carl Icahn’s three board nominees, while rejecting his dividend plan in favor of a lower payout supported by the company.
Icahn candidate Samuel Merksamer won a seat on the board of the world’s largest offshore oil rig contractor as shareholders removed Chairman Michael Talbert, Transocean Secretary Philippe Huber said at the Vernier, Switzerland-based company’s annual meeting today. Shareholders approved a $2.24-a-share annual dividend instead of Icahn’s $4 proposal.
“Its definitely a win for Transocean because they get the $2.24,” Luke Lemoine, an analyst at Capital One Southcoast Inc. in New Orleans who rates the shares a buy and owns none, said in a phone interview today. “Four dollars was pretty pushy.”
Icahn, Transocean’s largest shareholder, began pressing for the dividend and potential board changes in January. In March, after Transocean proposed reinstating the dividend, Icahn announced his three board nominees for a company he said “has conducted ill-advised mergers, employed unsuccessful development strategies and squandered the substantial cash flow.”
The company’s dividend proposal received 75 percent of shareholder votes, excluding Icahn’s stake, Chief Executive Officer Steven Newman said in a phone interview after the meeting.
“I consider that a very, very strong endorsement of the company’s business plan,” he said. While the company plans to increase its dividend in the future, it doesn’t have specific growth projections, he said.
Icahn, who held a 5.6 percent stake as of April 19, said in an e-mailed statement he was disappointed that Jose Maria Alapont, another nominee, lost by about 1 million votes. John Lipinski, the CEO of CVR Energy Inc., was the third nominee.
Icahn’s interest in Transocean follows his takeover last year of oil refiner CVR, which announced a $5.50 special dividend in January. Icahn also pressured Chesapeake Energy Corp. for board changes and the natural gas producer replaced its chief executive officer last month.
Icahn is one of several activist investors who have forced changes at energy companies in the past year. The Transocean vote comes one day after Hess Corp. reached a deal with Elliott Management Corp., agreeing to add three of the activist shareholder’s board nominees.
Occidental Petroleum Corp. Chairman Ray Irani, an executive at the oil company for almost three decades, was forced to step down this month after investors voted against him. SandRidge Energy Inc. agreed in March to make changes to its board after criticism from shareholder TPG-Axon Capital Management LP.
Transocean, which has 26 buy, 16 hold and two sell ratings from analysts, fell 1.3 percent to $54.03 at the close in New York. The shares have gained 21 percent this year.
Transocean’s CEO was re-elected to the 14-member board along with fellow company-backed nominees Robert Sprague and Thomas Cason. Frederico Curado was nominated by the company to fill a vacant board seat.
“The status quo needs to change to prevent continued squandering of shareholder capital,” Merksamer, a managing director for Icahn Capital LP, said in a March phone interview. “Diverting billions of dollars to pay down debt is the wrong strategy. The company should find other ways to reduce debt instead of using operating cash flow.”
Prior to the vote, Transocean said that Talbert would step down as chairman by a November board meeting. The former CEO pledged on May 13 to leave the board by the next annual shareholder gathering in 2014 after 19 years as a director.
“We believe that Michael Talbert, a long time incumbent, should bear responsibility for the long-term performance and outcome of strategic choices the company has made,” Institutional Shareholder Services, a proxy adviser, said in an April 25 report.
The company said there weren’t enough shareholders present today to vote on an Icahn proposal to elect all board members every year, so the item was rejected.
Transocean halted dividend payments last year after its Deepwater Horizon exploded in the U.S. Gulf of Mexico. The company employed nine of the 11 workers who died in the April 2010 disaster that resulted in the biggest offshore oil spill in U.S. history. Transocean agreed to pay $1.4 billion to settle claims from the incident.
Icahn only gaining a single seat on the board is “a mistake,” J. David Anderson, a New York-based analyst for JPMorgan Chase & Co., wrote in a note to investors today.
The company’s plan to use cash flow to pay down debt “doesn’t do much for shareholders” seeking some protection against a stock price decline, he wrote. “Radical change is required.”