What would Wilbur Ross do? Within the last hour I'd bet someone somewhere asked it. Captain of calm, Mr. Ross is a guy that many professional and DIY investors look to for direction, especially during stormy weather. As a bankruptcy and restructuring specialist, Mr. Ross is not afraid to help clean up a mess. If a press release for Company XYZ announced tomorrow that Wilbur Ross was buying-in, which direction do you think the stock price would go? All in all, Mr. Ross doesn't seem like the kind of guy who would argue over his position on the Forbes 400 list.
Get "the Wilbur Ross factor" for FREE
Not that long ago (2010ish), the future of EXCO Resources (NYSE: XCO) looked sunny and blue. In fact, the skies were so clear that CEO Doug Miller and T. Boone Pickens attempted a going private transaction valuing the business at $4.35 billion. Now trading close to all-time lows, the skies for Exco are looking much darker. Acting quite human-like, the masses and shale boom players have given up. Meaning, any "Wilbur Ross factor" (deserved or un-deserved) is completely off the table. Should the Wilbur-factor be worth more than zero?
Thanks a billion?
Not sure who owes who the favor on that outcome (Re: $4.35 billion deal falling through), but if they liked it then, they must love that it's selling for 72% less now. Like a genuine value investor would do, Mr. Ross is still holding tight. Via Invesco Private Capital, Mr. Ross still owns 31.5 million XCO shares, 14% or so.
A Letter to Mr. Ross:
Thanks for the dividends and all, but lately they've been costing me quite a bit. Based off the stock price, Exco seems to be just barely holding its head above water. As a longtime shareholder, I can't help but wonder, did you play a role in blocking Exco from going private in 2010? If so, why? And knowing what you know now do you think it was the right decision? By the way, I have some friends over at Penn West Petroleum (NYSE: PWE) and they're feeling the same pain. As you know, Penn West spiked down another 20% last week. Do you also see value in Penn West?
-Frustrated XCO shareholder, thanks in advance for your response.
The bet going forward...
I can't promise that Mr. Ross will dignify us with a response, but I can tell you that Exco at $1.2 billion looks cheaper than $4.35 billion. With big names like Mr. Ross and T. Boone Pickens on board, I think the bet (for buyers) is that lenders will keep on lending to Exco (if necessary) until energy prices turn up decidedly. With new partners like Harbinger Group (NYSE: HRG) and KKR, one could argue that Exco has lending capacity left in the barrel. Fight or flight? Exco doesn't seem to be afraid to pull the trigger. In July they spent $1 billion on the Eagle Ford and Haynesville, upgrading to oilier assets (it was a steal).
Penn West also has a history of selling off assets; I hear that many analysts are questioning their long-term sustainability (maybe that's a good thing). With 5.5 million net acres it still has plenty of room to divest. But without the Wilbur factor, and further from the end-user, will Penn West be able to navigate these threats if energy prices don't bail them out first? Next year Penn West expects to drill 108 net wells in the Viking and 67 at Cardium. With these Canadian plays already proven, any Penn West turnaround story will drill down to pricing and execution.
Is Harbinger a good predictor for Exco?
Through an MLP, Exco and Harbinger are relatively new partners (since March) on oil and gas properties in Texas and Louisiana. For $725 million, Harbinger got working assets that Exco is very familiar operating. The front page of Harbinger's website reads loud and clear: We acquire companies that we consider to be undervalued or fairly valued with attractive financial or strategic characteristics (nice ring, but kind of a mouthful). Since Oil and Gas Journal voted it 2013's best deal under $1 billion, I guess they're doing their job. Kind of a mini-conglomerate, this was Harbinger's first move into energy. With the stock up 35% since July, could Harbinger prove to be a good predictor for Exco?
Final Thoughts
Savers are being forced into riskier assets. High-yielding stocks like Exco and Penn West are just two examples of their options. However, getting captain calm (Wilbur Ross) and T. Boone Pickens for no cost makes for a slightly sweeter deal.
