Exclusive-SilverBow Resources investor calls for energy producer’s sale

By David French

(Reuters) – One of SilverBow Resources (NYSE:) Inc’s largest shareholders called on the U.S. oil and gas producer on Wednesday to drop its anti-takeover defenses and explore a sale, according to a letter reviewed by Reuters.

Hedge fund Riposte Capital wrote in the letter that Houston-based SilverBow’s valuation was weighed down by adoption of a so-called poison pill to defend itself from a hostile bid through dilution.

“The current strategy determined by the board of directors and management has siloed SilverBow and backed the company into a corner,” Riposte said in the letter.

SilverBow did not respond to a comment request.

SilverBow, which operates on around 180,000 net acres in South Texas’ Eagle Ford shale basin, adopted a poison pill last September. It cited “significant accumulations” of the company’s stock without identifying any party as a threat. The poison pill was extended on May 16 for another year.

Riposte accused SilverBow of adopting the poison pill to deter potential suitors willing to pay a good price. The letter did not identify who those suitors might be.

Run by Khaled Beydoun, Riposte said in the letter it holds a 7.5% stake in SilverBow, which would make it the company’s fourth-largest shareholder.

Riposte said it believes the company could be worth between $34 and $36 per share, based on comparisons to peers. SilverBow shares closed on Tuesday at $26.63, giving the company a market capitalization of about $600 million. It has lost 6% of its value so far this year, slightly outperforming the 8% decline by the S&P Energy index.

New York-based Riposte also called on SilverBow to prioritize shareholder returns over spending on new drilling. It said this can be achieved by changing the structure of management compensation, which currently incentivizes increased oil and gas production, and laying down a rig to save cash.

The letter is a rare example of shareholder activism from Riposte, although it is not the first time it has publicly voiced its displeasure at a company whose shares it owns: it challenged Canadian cannabis producer HEXO (NASDAQ:) Corp in 2018, and German high-tech manufacturer PVA TePla in 2020.