Audley Capital Advisors LLP (including certain related funds and
investment vehicles, “Audley Capital”) today issued the following
statement regarding the report on Walter Energy, Inc. (NYSE: WLT) (TSX:
WLT) (“Walter Energy” or “the Company”) issued by Glass Lewis & Co.
(“Glass Lewis”) on April 11, 2013. Audley Capital urges shareholders to
vote FOR its five nominees for election to the Board of Directors at the
Company’s upcoming 2013 Annual Meeting of Stockholders on April 25, 2013.
“Glass Lewis recognized the very same issues and concerns at Walter
Energy that motivated Audley Capital to propose new, experienced
director nominees to strengthen the Board. Our nominees are proven
executives and are committed to improving the Company and its balance
sheet – even in the face of volatile coal pricing. However, we believe
Glass Lewis failed to judge Walter Energy against appropriate industry
peers and fell into the same flawed analysis the Company has advanced by
focusing on thermal coal producers, rather than the Company’s
metallurgical coal peers – hiding much greater levels of risk and
concern.” said Julian Treger, Managing Partner of Audley Capital
Advisors.
Added Treger, “Walter Energy has the promise of being the premier met
coal producer in the world. For years, we believe the current Board has
mismanaged the Company and its balance sheet. While the Company makes
every effort to justify its significant underperformance and attack
Audley Capital’s nominees, we have continued to advocate for change and
the implementation of new initiatives that will benefit all
stockholders. Audley Capital’s nominees have a tremendous record of
value creation and they are committed to helping Walter Energy realize
its true potential. We look forward to the support of our fellow
stockholders at the Annual Meeting, where we will have the opportunity
to reverse what we see as repeated missteps by the current Board by
electing new directors who will bring a fresh, dynamic and creative
approach to the Walter Energy Board.”
Audley Capital believes that Glass Lewis’s analysis is also
significantly flawed because it tracks the Company’s stock performance
only through February 19, 2013 – following Walter Energy’s self-selected
reference point. However, between February 19th, 2013, and
April 11th, 2013, the Company’s stock price has decreased a
dramatic 40% – erasing almost $1 billion in market capitalization. We
believe this massive destruction of shareholder value and share
underperformance against peers was exacerbated by the higher interest
burden voluntarily taken on by the Company. This is a critical point
when judging the actions of the current Board, which in our view should
have been taken into account by Glass Lewis in its report.
In its report, Glass Lewis does acknowledge numerous areas of concern at
Walter Energy which have also been raised by independent third parties,
notably:
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Glass Lewis View
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Third Party Support
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Audley Capital Analysis
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“…we see that the Company’s total return over this period [April 1,
2011 – February 19, 2013] (-70.24%) falls below that of the peer
group and the Dow Jones U.S. Coal Index (-63.25% and -67.10%,
respectively) and well below the return on the Russell 3000 Index
(+14.34%).”
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“We remain cautious on shares of Walter Energy, Inc. (WLT-NYSE). The
Company's levered balance sheet in the midst of weakened met coal
pricing and demand is likely to become a growing source of equity
investor risk.” – KeyBanc; March 28, 2013
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Walter Energy’s stock performance since Western Coal deal close in
April 2011: -82%. Additionally, tracking performance only through
February 19th is misleading, given that the Company’s
stock lost 40% of its value between February 19 and April 11, 2013.
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“Overall, we recognize that the Company’s debt level is on the high
side relative to peers and that deleveraging should be a priority.”
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“We agree with Audley that Walter entered the current downturn with
excessive debt levels following the 2011 acquisition of Western
Coal. In retrospect, Walter would have been better served by using
equity rather than debt to fund the majority of the transaction,
which was the approach taken by top met coal competitor Alpha
Natural Resources (ANR – Hold - $9.50) in its acquisition of Massey
Energy in 2011.” – Stifel; February 20, 2013
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Walter Energy has a net debt to book value of equity ratio of 228%,
while the Company’s peers’ net debt/stockholders’ equity ratios
range from 47% to 144%.
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“As noted by the Dissident, we see that the Company’s SG&A costs
relative to sales are on the high side compared to peers and we
agree a disciplined review of the Company’s cost structure could
benefit shareholders.”
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“We estimate Walter’s SG&A expense to be $131 million, or 5.0% of
revenues in 2013. This compares with a peer group average of 3.0% of
revenues for Walter’s four largest U.S. peers.” – Stifel; February
20, 2013
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SG&A costs at the Company are higher than Walter Energy’s U.S. peer
group and we believe savings of at least $10.0 million per quarter
and $40.0 million per year should be targeted.
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“Regarding executive management, we agree that the considerable CEO
turnover at the Company over the past five years is troubling,
particularly with regard to Mr. Calder who was appointed CEO if the
Company in April 2011 in connection with the acquisition of Western
Coal only to resign three months later, citing differences of
opinion between himself and the board on matters of strategic
direction.”
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“We agree with Audley that the high turnover at Walter’s CEO
position over the past five years has been unsettling.” – Stifel;
February 20, 2013
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There have been four CEOs over the past five years (including the
current CEO and an “interim” CEO who served for more than a year).
We believe this is not healthy corporate governance and is
inarguably an issue of high concern.
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“We believe the Dissident presents a talented roster of director
nominees who collectively possess significant executive and board
level experience at public mining companies and on other areas that
could benefit shareholders, in our view.”
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“Recent news of potential board challenges are rekindling thoughts
of potential moves to stimulate value.” – Sterne Agee; February 22,
2013
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Audley Capital’s director nominees include individuals with
extensive experience in the metallurgical coal industry on an
international basis and possess the skills required to manage
multi-jurisdictional coal operations and their financing.
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*Audley Capital has not requested or obtained the consent of any third
party quoted
Audley Capital urges stockholders to vote FOR its five director nominees
by immediately completing and returning their GOLD
proxy card or by submitting proxies by telephone or through the
Internet. Investors that need assistance or have any questions or need
assistance voting your shares, please call our proxy solicitor, Okapi
Partners LLC, at (877) 208-8903.
Additional Information
Further information regarding the director nominees and other persons
who may be deemed participants, and other matters, are set forth in a
definitive proxy statement filed with the Securities and Exchange
Commission (“SEC”). SHAREHOLDERS OF THE COMPANY ARE STRONGLY ADVISED TO
READ THAT PROXY STATEMENT, BECAUSE IT INCLUDES IMPORTANT INFORMATION.
THE PROXY STATEMENT IS BEING SENT TO SHAREHOLDERS BY OR ON BEHALF OF
PARTICIPANTS, AND IS ALSO AVAILABLE AT NO CHARGE ON THE SEC’S WEBSITE AT http://www.sec.gov.
