Lion Long Term Partners LP, a significant shareholder of Texas Pacific Land Corporation, Issues Statement In Response to Texas Pacific Land Corporation Board Comments
November 07 2022 - 5:16PM
Lion Long Term Partners LP, a significant shareholder of 50,600
shares of Texas Pacific Land Corporation (NYSE: TPL), Issues
Statement In Response to Texas Pacific Land Corporation Board
Comments
Stephen N. WalkerLion Long Term Partners LPBoard of Directors
& StockholdersTexas Pacific Land Corporation
November 7, 2022
Dear Board Members & Stockholders of TPL:
Re: Texas Pacific Land Corporation (“TPL”) Annual Meeting of
Stockholders November 16, 2022
On October 17, 2022 I wrote a letter to stockholders of TPL and
to Fund Managers and Institutional Proxy Advisors urging them to
vote Against Proposal 4:
“To approve an amendment to the Company’s Certificate of
Incorporation increasing the authorized shares of common stock from
7,756,156 shares to 46,536,936 shares.”
On Friday November 4th, 2022 TPL investor relations officer
Shawn Amini very kindly arranged for me to speak with CEO Tyler
Glover and CFO Chris Steddum. We engaged in a frank discussion in
which I explained the reasons for my recommending TPL stockholders
to vote Against Proposal 4.
In response Mr. Glover stated that:
-The majority of S&P400 companies have excess authorized
shares (in their “toolbox”) available to be used for potential
acquisitions.
-Adding this tool to the TPL management’s toolbox does not
represent a change in strategy.
-He has repeatedly referenced in earnings calls with
stockholders a desire to make acquisitions, and that this should
therefore not be a surprise to stockholders.
-There are assets for sale where sellers often require payment
at least partly in stock.
-He considers that management and the Board of TPL are
responsible stewards of TPL stockholders’ capital and that the
Board would fulfill their fiduciary duties to stockholders in
making any acquisition decision.
I elaborated on the concerns that continue to persuade me that
TPL’s stockholders should vote Against Proposal 4:
-My experience as a board member of a NASDAQ listed company
taught me that Board and Management should focus first and foremost
on building a relationship of trust with stockholders. In my
opinion a great deal of work needs to be done to improve the TPL
Board/Management relations with Stockholders.
-TPL has for 125 years followed a simple business model, namely,
collect royalties, sell surface land and use the proceeds to buy
back stock. This has been a tremendously successful strategy. The
total return, dividends reinvested, from 12/31/1992 to 12/31/2017
of TPL was 16,458% compared with the total return, dividends
reinvested, of the S&P400 of 1,591% over the same 25 year
period. TPL is not just another typical S&P400 company.
-TPL is a unique case. I persist in my view that the request of
authorization for a doubling of authorized shares to be used as a
currency in buying assets certainly does represent a 180 degree
change in strategy by TPL.
-At a very minimum Proposal 4 should have been separated into
two distinct questions, namely (1) Do you want a stock split? and
(2) Do you want to change the TPL business model?
Why is the use of stock as a currency in acquiring assets such a
hot button topic?
Because it goes to the very heart of the issue of the alignment
of interest between stockholders and a company’s management and
board of directors. In many Berkshire Hathaway annual letters
investment legend Warren Buffett has addressed this topic. Having
stock to issue is not simply “just another tool in the toolbox”.
Here is an extract from Mr. Buffett’s 1994 Berkshire letter to
stockholders:
“The sad fact is that most major acquisitions display an
egregious imbalance: They are a bonanza for the shareholders
of the acquiree; they increase the income and status of
the acquirer's management; and they are a honey pot for
the investment bankers and other professionals on both sides.
But, alas, they usually reduce the wealth of the acquirer's
shareholders, often to a substantial extent. That happens
because the acquirer typically gives up more intrinsic value than
it receives. Do that enough, says John Medlin, the retired
head of Wachovia Corp., and "you are running a chain letter in
reverse.”
Over time, the skill with which a company's managers allocate
capital has an enormous impact on the enterprise's value.
Almost by definition, a really good business generates far more
money (at least after its early years) than it can use
internally. The company could, of course, distribute the
money to shareholders by way of dividends or share
repurchases. But often the CEO asks a strategic planning
staff, consultants or investment bankers whether an acquisition or
two might make sense. That's like asking your interior
decorator whether you need a $50,000 rug.”
Conclusion
The Board of Directors of TPL has a fiduciary responsibility to
stockholders to safe-guard a truly unique asset. For over 125 years
TPL has single-mindedly followed a simple business model that has
created tremendous, index-beating returns for its owners. Now just
23 months after converting to a Delaware C corp. the Board and
management would have TPL’s stockholders indirectly agree to a
dramatic change in TPL’s business plan, without informed
stockholder input, claiming it to be a “routine” decision. It is
not.
For these reasons, I shall continue to urge the
Stockholders of TPL to vote Against Proposal 4.
Sincerely
/s/ Stephen N. Walker
Stephen N. WalkerGeneral Partner Lion Long Term Partners LP
THIS IS NOT A SOLICITATION OF AUTHORITY TO VOTE YOUR
PROXY. DO NOT SEND US YOUR PROXY CARD. LION LONG TERM PARTNERS LP
IS NOT ABLE TO VOTE YOUR PROXY, NOR DOES THIS COMMUNICATION
CONTEMPLATE SUCH AN EVENT. WE URGE TPL’S STOCKHOLDERS TO VOTE
AGAINST PROPOSAL 4 BY FOLLOWING THE INSTRUCTIONS PROVIDED BY
MANAGEMENT IN ITS PROXY MAILING.
THE VIEWS EXPRESSED ABOVE ARE THOSE OF LION LONG TERM
PARTNERS LP and Mr. Walker. THE INFORMATION PROVIDED IN THIS
COMMUNICATION MAY NOT BE RELIED UPON AS INVESTMENT ADVICE, NOR BE
CONSIDERED AS A RECOMMENDATION TO BUY OR SELL SHARES OF TPL. THIS
COMMUNICATION IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE
CONSTRUED AS A RESEARCH REPORT.
Contact:
John Glenn GrauInvestorCom LLC(203) 295-7841
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