Memphis investor continues campaign to put Deltic Timber on auction block

by Wesley Brown ([email protected]) 1,190 views 

A privately held investment firm led by Memphis billionaire Mason Hawkins said in a recent securities filing that Deltic Timber Inc.’s board of directors and revamped executive team are not serious about seeking “strategic alternatives” to sell the El Dorado-based timberland concern to a larger rival.

In a Schedule 13D filing at the close of business Friday, Memphis-based Southeastern Asset Management Inc. said that as Deltic Timber’s largest shareholder, the off-Wall Street institutional investor has “engaged in discussions with both Deltic and multiple parties interested in merging with or acquiring Deltic.”

“We have learned that at least one highly reputable industrial party has made an unsolicited proposal to merge with Deltic in exchange for stock in the acquiring company,” the SEC filing stated. “While Southeastern has been willing to enter into an agreement with Deltic to help the Issuer evaluate this proposal, it has become clear after many attempts that Deltic is not serious about engaging with Southeastern at a substantive level.”

That caustic SEC filing caused Deltic Timber officials to counter Monday that the Arkansas timberland and real estate firm is “making significant progress evaluating the (company’s) assets, competitive position, and market risks and opportunities … is now assessing a comprehensive range of strategic alternatives.”

“Over the past several months, Deltic has been approached by a number of industry participants regarding interest in a potential strategic transaction. The company has been actively engaged in evaluating those confidential indications of interest and intends to continue the process to develop potential external strategic alternatives,” Deltic said, adding that it also remains committed to finalizing internal strategic initiatives to improve existing assets, focus on core competencies and evaluate tax efficiencies.

As reported by Talk Business & Politics after Deltic’s disappointing second quarter results on Aug. 2, CEO John Enlow stressed to investors and shareholders that the company has made significant progress in evaluating its strategic position, including looking at a wide-range of possible deals.

“Deltic continues to make progress to sharpen our focus on relentless execution and increase shareholder value,” said Enlow, who took over the reins as the company’s chief executive in late February.

In addition to company’s second quarter response and Monday’s reply to Southeastern’s securities filing, Deltic’s board of directors said it has not set a timetable for completion of its strategic alternatives process and would not provide assurances of any given specific outcome.

“Given the confidential nature of the discussions the Company is undertaking, providing more detailed information at this time would be disruptive to developing the full range of potential outcomes. When the Company is prepared to provide an update to the process, it intends to inform all shareholders at the same time,” said the Deltic board, which is led by longtime chairman Robert Nolan.

The back-and-forth between Deltic and Southeastern has been ongoing since a first Schedule 13D filing on Feb. 22, when the Memphis-based investment giant said it wanted to play a bigger role and possibly participate in talks to help Deltic build “intrinsic value per share or to cause the company’s true economic value to be recognized.”

Southeastern, which holds a 15% stake in the former spin-off of Murphy Oil Corp., has said in the past an acquisition by a larger Real Estate Investment Trust (REIT) with “superior, experience corporate leadership”  would have prevented a change of control situation that led to possible misuse of company assets by the former CFO. Today, larger REITs such as Weyerhaeuser, Rayonier and Potlatch Corp. dominate the timberland industry, but none have publicly expressed in interest in the much smaller Arkansas company.

Since the February imbroglio, however, Deltic has hired Enlow as its new CEO, fired its former chief financial officer Kenneth Mann for misappropriating company assets for personal use and extended the tenure of Nolan as board chairman beyond the company’s mandatory retirement age of 75. All those changes came after the unexpected resignation of longtime President and CEO Ray Dillon in December.

“Our confidence in Deltic’s board and management has been significantly diminished by this refusal to engage, the time that has been wasted since our Schedule 13D was filed, Deltic’s attempts to lock up Southeastern for an inordinate amount of time into the future, the board’s hiring of a CEO and providing him with significant benefits in connection with a change of control transaction after the outreach from potential transaction counterparties and notwithstanding our suggestion not to enter into such an arrangement in light of such outreach, the board’s inability to oversee the previous CFO who was fired for fraud, and the current management team’s inability to provide any compelling reasons for Deltic to remain a standalone public company,” Southeastern stated in the SEC filing signed Hawkins, the investment firm’s longtime founder, chairman and CEO.

Southeastern, which has total assets under management of $19.8 billion, also reiterated that Deltic’s delay tactics and untested management team could force the global institutional investor to use its $140 million stake in the Arkansas company to nominate a new slate of directors at Deltic’s annual board meeting next year.

“We are filing this … to signal our support for this unsolicited proposal and to encourage other Deltic shareholders to express their views to the board and management for a better outcome than the status quo,” noted Southeastern.

On Tuesday, Deltic’s shares (NYSE: DEL) were down 86 cents or $1.14 at $75.28, putting the Arkansas company’s market cap at nearly $920 million. The El Dorado-based timberland and real estate company said it recently hired Wall Street giant Goldman Sachs & Co. LLC as financial advisor and New York City-based Davis Polk & Wardwell LLP as its legal representative.