Jana Partners LLC Calls on Houston Exploration Company's Board to Respond to Shareholder Demands Evidenced by Large 'Withhold'
03 Mai 2006 - 3:18PM
PR Newswire (US)
NEW YORK, May 3 /PRNewswire/ -- JANA Partners LLC ("JANA") today
called upon the Board of Directors of The Houston Exploration
Company ("Houston Exploration" or the "Company") (NYSE - THX) to
recognize the overwhelming shareholder support for JANA's efforts
to force the Board to take value- maximizing action evidenced by
the substantial number of "withhold" votes cast at the Company's
annual meeting of shareholders last week. In a letter sent today to
the Company's Board of Directors, JANA Managing Partner Barry
Rosenstein pointed out that the already sizable 30% withhold vote
cast by shareholders last week would have been even larger had the
vote reflected the current shareholder base. Rosenstein pointed out
that as of the record date for last week's annual meeting, JANA
held for voting purposes only slightly more than 1% of the
Company's stock (holding for regulatory reasons the remainder of
its stake in options which have since been exercised), as opposed
to its current 9% voting ownership, meaning the withhold vote would
have been closer to 40% today. Factoring in the considerable
turnover in the Company's shares between the March 9 record date
for voting at the annual meeting and today, Rosenstein estimated
that today the withhold campaign would have generated support from
the holders of more than 50% of the Company's shares. "In short,
any comfort the Board takes in receiving a majority of the votes
cast at the Annual Meeting should be abandoned," Rosenstein stated.
Mr. Rosenstein also pointed out that the size of the withhold vote
was made even more notable by the fact that JANA publicly called on
shareholders to withhold their votes only five days before the
annual meeting and had been without the benefit of either a
shareholder list for contacting shareholders directly or the
ability to request support from proxy advisor Institutional
Shareholder Services. Rosenstein encouraged the Board to follow the
example of other companies which responded to sizeable withhold
votes by taking immediate action responsive to shareholder demands.
Rosenstein noted that the resignation of former Disney Chairman and
CEO Michael Eisner as chairman of that company's board following an
approximately 40% withhold vote was one such example, and pointed
to board responses to withhold campaigns at Federated Department
Stores, Inc., Safeway Inc. and Career Education Corporation as
well. "The Board has to date indicated that it feels free to
effectively disregard pressure to maximize shareholder value," Mr.
Rosenstein stated in today's letter. "But even the most
intransigent board must at some point answer to its shareholders,
and last week's withhold vote makes clear that time for Houston
Exploration's Board to do so has run out." "You should consider
last week's vote the beginning of a process, the outcome of which
will be that shareholders will have a Board which aggressively
pursues maximum value for them," Mr. Rosenstein concluded. "The
only question now is the means by which this will occur. You can do
the right thing for shareholders now by instituting a substantial
share repurchase as we have described, or you can continue to
ignore shareholder demands and face an unhindered campaign next
year in which shareholders will be free to replace you. We
encourage you to avoid further wasteful delay and respond to your
shareholders' wishes now." Background JANA Partners LLC, a Delaware
limited liability company, is a hedge fund with assets exceeding $5
billion with offices in New York and San Francisco and is the
beneficial owner of approximately 9% of the outstanding shares of
Houston Exploration. JANA holds the Company's common stock in
various accounts under its management and control. JANA has
publicly called upon the Board to put the proceeds of recent asset
sales to work for shareholders through a substantial share
repurchase rather than pursuing new acquisitions or repaying debt,
which JANA has said will deliver far less value for shareholders.
Following what JANA has called the Board's failure to seriously
consider its analysis, JANA encouraged shareholders last week to
join it in withholding their votes for the Company's directors at
last Friday's annual meeting. ATTACHMENT: FULL TEXT OF MAY 3, 2006
LETTER FROM JANA PARTNERS LLC TO ALL SHAREHOLDERS OF THE HOUSTON
EXPLORATION COMPANY May 3, 2006 The Board of Directors The Houston
Exploration Company 1100 Louisiana Street, Suite 2000 Houston,
Texas 77002 Attention: William G. Hargett Chairman, CEO &
President VIA FACSIMILE AND OVERNIGHT DELIVERY Gentlemen, JANA
Partners LLC ("we" or "us"), the beneficial owner of approximately
9% of the shares of The Houston Exploration Company ("Houston
Exploration" or the "Company"), discussed with management last
month our belief that the proceeds of the recent Gulf of Mexico
asset sale, together with the Company's underleveraged balance
sheet, should be used to fund a prompt repurchase of a substantial
portion of the Company's shares. As we have said repeatedly, this
will clearly create more value than either new acquisitions or debt
repayments. Following the Board's refusal to even feign serious
consideration of our analysis, last week we announced that we would
withhold our votes for the Board at the Company's annual
shareholders meeting (the "Annual Meeting") and urged other
shareholders to join us. The results could not have been clearer.
Notwithstanding that our "campaign" started only five days before
the Annual Meeting, the preliminary returns show that approximately
30% of the votes cast were to withhold authority for the reelection
of seven incumbent directors and substantially more to withhold for
an eighth director, in contrast to only approximately 4-7% of the
votes cast at last year's annual meeting. Furthermore, these
results hardly begin to tell the full story. What makes the results
even more overwhelming is that on the record date for the Annual
Meeting, we held for voting purposes only slightly more than 1% of
the stock(1), meaning that the vote would have been closer to 40%
had we been able to vote the shares we hold outright today. Also,
given the substantial turnover in the Company's ownership base
between the record date for the Annual Meeting and today, which we
assume has been comprised largely of shareholders supporting our
efforts, you would be quite safe in assuming the vote today would
be well above 50%. In short, any comfort the Board takes in
receiving a majority of the votes cast at the Annual Meeting should
be abandoned. The strength of this message is also highlighted by
the fact that such a sizable percentage was assembled despite the
numerous factors working in the Board's favor. Because the Gulf of
Mexico asset sale issue arose only shortly before the Annual
Meeting, we were deprived both of the time to conduct a genuine
campaign and of many of the tools typically available in such
undertakings. We were without a shareholder list, meaning that we
were able to contact only a small number of shareholders directly.
Also, by last week it was too late to seek the support of
Institutional Shareholder Services, the nation's leading proxy
voting advisory service. We therefore strongly suggest that you
follow the example of other companies who have faced a substantial
withhold vote and have responded by taking actions in accordance
with their shareholders' wishes. A prominent example was the
response to the approximately 40% withhold votes cast at Walt
Disney's annual meeting in 2005, which led Michael Eisner to step
down as Chairman of the Board. Other notable examples of companies
recognizing sizable withhold votes as wake-up calls and responding
to their shareholders' wishes include Federated Department Stores,
Inc., Safeway Inc. and Career Education Corporation. The Board has
to date indicated that it feels free to effectively disregard
pressure to maximize shareholder value. But even the most
intransigent board must at some point answer to its shareholders,
and last week's withhold vote makes clear that time for Houston
Exploration's Board to do so has run out. You should consider last
week's vote the beginning of a process, the outcome of which will
be that shareholders will have a Board which aggressively pursues
maximum value for them. The only question now is the means by which
this will occur. You can do the right thing for shareholders now by
instituting a substantial share repurchase as we have described, or
you can continue to ignore shareholder demands and face an
unhindered campaign next year in which shareholders will be free to
replace you. We encourage you to avoid further wasteful delay and
respond to your shareholders' wishes now. You may contact us at
(415) 989-7770 should you wish to discuss this matter further.
Sincerely, Barry Rosenstein JANA Partners LLC Managing Partner
BR/MW/CP (1) On the record date the majority of our shares were
held through options given that we had not yet received the
necessary regulatory clearance to purchase additional shares
outright. These options have since been exercised. DATASOURCE: JANA
Partners LLC CONTACT: For more information contact JANA Partners
LLC at +1-212-692- 7696
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