Lion Long Term Partners LP, a significant Stockholder of 50,600
shares of Texas Pacific Land Corporation (NYSE: TPL) Issues
Statement In Response to Texas Pacific Land Corporation Stockholder
Letter From Board
Stephen N. WalkerLion Long Term Partners LP
Stockholders ofTexas Pacific Land Corporation
November 9, 2022
Dear Fellow Stockholders:
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.”
Yesterday, November 8th, Messrs J.R. Norris III
and D. E. Barry, the Co-Chairmen of the TPL Board, and T. Glover,
the President and CEO of TPL, wrote to stockholders to encourage us
to vote “FOR” Proposal 4. In their letter they raised various
points, which I address here:
1/ Three institutional proxy advisory firms have
recommended a “for” vote:
Proxy advisory firms publish the guidelines that
they use in making their analyses of vote recommendations for
stockholder meetings. It is clear to me that Proposal 4 was
specifically designed to fit inside these published guidelines. It
should therefore be no surprise that the proxy advisory firms have
recommended as they did. This is simply an example of a common
tactic, namely “gaming the system”.
Proxy advisory firm recommendations are mostly
used by Index Funds and passive Exchange Traded Funds. By their
nature they are “one size fits all” recommendations. As I have
previously said, our company, TPL, is a unique asset within the
S&P universe of companies. Therefore I urge you to think for
yourself in making your voting decisions. The proxy advisory firm
recommendations are far too standardized to be useful to TPL
stockholders.
2/ Intended use of newly authorized shares to
attract talent and incentivize employees:
This is a red herring. TPL does not need to
double its authorized shares outstanding to attract talent and
incentivize its employees.
3/ “We have a track record of making thoughtful
disciplined investments…”:
TPL management has no documented track record of
making successful acquisitions. The few transactions that have been
made in the past five years were done in cash and were small in
size. There was no transparency with respect to the assets acquired
and management has never followed up with stockholders to detail
how those assets performed after the acquisition.
4/ “We have a track record of making thoughtful,
disciplined investments, including our $125 million investment into
Water Services and Operations, which has returned more than $300
million of cash flow to-date, with more to come.”
This headline gives no useful information upon
which we can judge the track record of the water business. What we
do know is that: -Despite repeated questions on
earnings calls, management has failed to provide sufficient detail
of costs for the two elements of the water business to enable a
thorough analysis of its profitability.
-Between 12/31/2017 and 12/31/2021 TPL’s pretax
margin fell from 93.81% to 80.49%.
-Employees in the TPL water business increased
from 10 as reported in the 2017 10K to 92 as reported in the 2021
10K.
-TPL already generated royalties from ownership
of ground water and subsurface injection rights prior to the
creation of the water business in 2017.
-No detailed breakdown has ever been provided to
demonstrate that TPL’s stockholders are better off with the new,
employee heavy, water business than they would have been with
continuation of the royalty model.
TPL 2020 10K - Water Services and
Operations: “Prior to the formation of TPWR, we entered into
agreements with energy companies and oilfield service businesses to
allow such companies to explore for water, drill water wells,
construct water-related infrastructure and purchase water sourced
from land that we own While we continue to collect water royalties
under these legacy agreements, the overall contribution to revenue
from these legacy agreements has declined in recent years and is
expected to continue to decline in the future as the activities are
undertaken by TPWR.”
5/ “A 3-for-1 stock split is expected to enhance
trading liquidity and attract a broader investor base, which will
benefit all Texas Pacific stockholders”:
Many thoughtful investors disagree with this
assertion about the desirability of stock splits. Investment legend
Warren Buffett in his 1983 shareholder letter wrote:
Chairman's Letter - 1983: Stock Splits
and Stock
Activity https://www.berkshirehathaway.com/letters/1983.html
“We often are asked why Berkshire does not split
its stock. The assumption behind this question usually appears to
be that a split would be a pro-shareholder action. We
disagree.
We want those (investors) who think of
themselves as business owners and invest in companies with the
intention of staying a long time. And, we want those who keep their
eyes focused on business results, not market prices. Investors
possessing those characteristics are in a small minority, but we
have an exceptional collection of them.
Were we to split the stock or take other actions
focusing on stock price rather than business value, we would
attract an entering class of buyers inferior to the exiting class
of sellers. At $1300, there are very few investors who can’t
afford a Berkshire share. Would a potential one-share
purchaser be better off if we split 100 for 1 so he could buy 100
shares?
One of the ironies of the stock market is the
emphasis on activity. Brokers, using terms such as “marketability”
and “liquidity”, sing the praises of companies with high share
turnover (those who cannot fill your pocket will confidently fill
your ear). But investors should understand that what is good for
the croupier is not good for the customer. A hyperactive stock
market is the pickpocket of enterprise.”
Conclusion
TPL converted to a Delaware C Corp at the
beginning of 2021. It appears to me that the transition has been
difficult for the legacy Chairman and CEO. In my opinion much work
needs to be done by them to improve the level of trust between
stockholders and the Board and Management of TPL. In the meantime I
urge my fellow stockholders to consider very carefully what
additional “tools” we add to the management “toolbox”. Twenty-three
million newly authorized shares is not one I would recommend.
I therefore continue to urge you 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
Texas Pacific Land (NYSE:TPL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Texas Pacific Land (NYSE:TPL)
Historical Stock Chart
From Jul 2023 to Jul 2024