Kimmeridge pulls SilverBow offer, shifts focus toward proxy fight

Kimmeridge Energy Management Co. pulled its offer to merge its E&P company Kimmeridge Texas Gas with SilverBow Resources, a transaction that would have created the largest public Eagle Ford gas pure-play by production. Instead, the two sides are heading toward a proxy fight at SilverBow’s annual meeting, set for May 21.

The alternative asset manager outlined a merger proposal March 13 under which it would contribute KTG’s assets and $500 million in exchange for 47.1 million SilverBow shares, giving it 69% of the combined company, which it said would have an estimated enterprise value of $3.6 billion. Since then, SilverBow has publicly accused Kimmeridge of withholding necessary information, while Kimmeridge has charged that SilverBow is neglecting stakeholders by refusing to conduct seriously due diligence.

In the most recent public salvo, posted on April 11, Kimmeridge asked SilverBow to suggest alternative terms for a merger by April 15. Kimmeridge has said it would take the deal off the table on April 26. Apparently, SilverBow did not present a counteroffer, so Kimmeridge pulled the proposal 10 days early.

“Given SilverBow’s lack of engagement, Kimmeridge sees no pathway towards a transaction by the April 26, 2024, deadline that we had put forward more than a month ago. As a result, we are withdrawing the proposal and will be focused on providing solutions for SilverBow’s broken governance,” Kimmeridge said in an April 16 statement.

Kimmeridge is SilverBow’s largest shareholder with a 12.9% stake. When it acquired 14.7% of SilverBow in 2022, the E&P company approved a limited-duration stockholder rights plan that allows it to issue discounted shares if any shareholder owns 15% or more of its common stock. This “poison pill” essentially blocks a hostile takeover though the NYSE, leaving Kimmeridge with the options of rousing enough shareholder pressure to sway the current SilverBow board not to renew the poison pill, which expires the day after the 2024 annual meeting. or installing a more friendly board.

At the upcoming annual meeting, Kimmeridge wants SilverBow shareholders to vote for its three nominees for the board and to vote “withhold” on the three incumbent directors. SilverBow has criticized the alternative nominees, citing their ties to Kimmeridge, but the activist investor said its nominees will conduct an “unbiased evaluation of all potential paths to value creation.”

It also wants shareholders to reject the compensation package for SilverBow’s executive officers and to vote for annual elections for all board members. SilverBow supports a proposal that will stagger the terms so some directors will not face re-election until 2027.