The chief executive of Tallgrass Energy LP, under fire from investors over sales talks with private equity firm Blackstone, on Oct. 30 defended management provisions in the deal and blamed selling shareholders for a 23% stock-price drop.
In August, Blackstone Infrastructure Partners made a non-binding proposal to buy the shares in Tallgrass it does not already own for $3.03 billion, or $19.50 apiece. The agreement included a provision for management to be paid about a 30% premium for shares in the general partner that owns Tallgrass.
Tallgrass CEO David Dehaemers called it "patently false" that managers would get a higher price for their shares than retail investors in the company's limited partnership. The additional compensation included in the proposed deal was for retention, non-compete agreements and share sales restrictions, he said.
Dehaemers blamed the decline in the share price on "our largest institutional holders," telling investors on an earnings call, "Look at what they have bought and sold." He did not identify the selling shareholders by name.
Blaming institutional investors for the share price decline "is like blaming the sun for a sunburn," said Ethan Bellamy, an analyst at investment firm Robert W. Baird & Co who previously criticized the management deal as "bad governance."
"The agreement insulated management from stock price declines, unlike those experienced by common holders," Bellamy said. "We know what management is getting for most of their stock. We still don’t know what TGE common holders will receive."
Over the past seven years, Dehaemers said he accumulated more than 2 million shares and until March had never sold any.
Tallgrass closed at $18.32 on Oct. 30, down from $23.83 when Blackstone first agreed to acquire a 44.2% stake in late January. In August, Blackstone offered to buy out the rest.
However, Bellamy said in a note to clients that the stock price would likely recover toward the $19.50 mark, Blackstone's takeout price.
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