Kerr-McGee rejects Icahn group's VPP proposal as 'irresponsible'


Posted: Tuesday, March 08, 2005

Kerr-McGee rejects Icahn group's VPP proposal as 'irresponsible'

Kerr-McGee Board of Directors have just announced they unanimously oppose a proposal put forward by corporate raider Carl Icahn for Kerr McGee Corp. to sell up to 32 percent of its future oil production in advance and use the proceeds to buy back company stock.

Icahn is the largest individual owner of Kerr-McGee stock and is best known for spearheading the hostile takeover of TWA in 1985. His estimated worth is in excess of $7.6 billion.

In a press statement today the corporation said Icahn's proposal was "irresponsible" and not in the best interests of all of its stockholders, creditors and the company. The corporation indicated it was acting upon the advice given to it by its financial advisors - Lehman Brothers Inc. and JP Morgan.

"Mr. Icahn's proposal of a VPP of this magnitude would extract the revenue from approximately 32 percent of our proved developed producing reserves, while leaving the company with 100 percent of the costs," said Kerr-McGee CEO Luke Corbett.

"This would not leave the company with sufficient capital to develop the more than 425 million BOE of reserves currently booked as proved but undeveloped. As a result, we believe the value of our remaining proved reserves would be greatly reduced. Additionally, this proposal would not allow for the timely exploitation of our large inventory of identified probable and possible resources and exploration of our high-potential prospect inventory. Finally, since none of the proceeds from Mr. Icahn's proposal would be applied to debt reduction, it would have very serious negative implications to our capital structure and likely cause our credit rating to drop to junk status."

Corbett added: "We have seen VPPs employed productively on a much more prudent scale, but Mr. Icahn's proposal is tantamount to mortgaging the company's future simply to provide Mr. Icahn and his partners with some quick cash. We believe Mr. Icahn's analysis is flawed, and we will make our case directly with our stockholders."

The Board also indicated today it is considering spinning off or selling its chemical business - which is being pushed by Icahn - and is studying the various options.

It also indicated it has authorized the company to proceed with a share repurchase program initially set at $1 billion. The Board expects to expand the share repurchase program as the chemical business separation proceeds.

"We do not believe that the value of our chemical business is adequately reflected in our market valuation," Corbett said. "For some time, the Board has been considering the separation of chemical, and current market conditions for this industry now make it an ideal time to unlock this value for our stockholders. By developing and capitalizing on cost, quality and technological advantages, we have grown our chemical business into the world's third-largest producer and marketer of titanium dioxide.

"Similarly, we have grown our oil and gas operations into the nation's sixth-largest independent exploration and production company by strategically focusing on core areas. More importantly, we now have created a well-balanced portfolio of attractive, high-quality oil and gas assets that provides a large inventory of repeatable, low-risk exploitation projects and high-potential exploration opportunities. Following separation of the chemical business, we will continue to focus on our core competencies in exploration, exploitation, development and production to further enhance value for all stockholders."