Is Help On the Way for Chesapeake Shareholders?

Hang on, Chesapeake Energy (NYSE: CHK  ) investors, there may be a white knight riding to the rescue.

Yesterday, Southeastern Asset Management, Chesapeake's largest shareholder with a near-14% stake, took a step that could potentially have them playing a bigger part in the ongoing governance kerfuffle at Chesapeake.

When a shareholder reaches the 5% ownership level, they have to start filing with the SEC in relation to that position. Big shareholders usually prefer to file a Schedule 13G -- it only allows more passive participation as a shareholder, but it has fewer reporting requirements. Last year, Southeastern filed this 13G for its Chesapeake stake.

In the wake of the latest mess with Chesapeake and CEO Aubrey McClendon, Southeastern filed a Schedule 13D. This is the big brother of the 13G. The 13D requires the investor to share more information, but it also allows them to do more -- like prod the board and management to take a particular course of action.

A key part of a 13D filing is the "Purpose of Transaction" section, where the shareholder has to lay out why they've bought the stake and what their intentions are. Southeastern was pretty cagey in their answer, but here's a snippet of what they had to say:

Southeastern qualifies as an institution which may elect to file securities ownership reports required by the Securities Exchange Act of 1934 on Schedule 13G and, as a routine matter, Southeastern utilizes Schedule 13G for its reporting of the ownership positions held by its investment advisory clients. ... Southeastern may elect to convert a filing on Schedule 13G to a filing on Schedule 13D in order to be more active in corporate governance and management matters, and to have the ability to enter into discussions with third parties concerning proposed corporate transactions of a significant nature. ... Southeastern is hereby converting its ownership filing on Schedule 13G to a filing on Schedule 13D. Southeastern intends to discuss with management, the Board, as well as various third parties opportunities to maximize the value of the company for all shareholders.

Translation: "We generally file 13Gs, but when there's need for us to lay down the law with governance issues or push management toward value-maximizing moves, you better bet we'll change to a 13D. And that's exactly what we're doing with Chesapeake."

This could mean a lot of things. It could mean that Southeastern is just going to have some friendly discussions with management and the board, and help guide them toward a few nicer governance practices. However, it could also mean that Southeastern is fed up and ready to push for McClendon's ouster, a wholesale shake-up in the boardroom, or even a sale of the company.

Right now there are more questions than answers in Southeastern's filing, but Mason Hawkins -- who runs Southeastern along with Staley Cates -- is a sharp investor who's been in this business a long time. Amid all of the craziness going on with Chesapeake right now, investors would be wise to keep their eyes on how this unfolds. Add the company to your watchlist and track this stock as the saga continues.

Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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10/27/2016 4:01 PM
CHK $6.08 Up +0.08 +1.33%
Chesapeake Energy CAPS Rating: ***