NEW YORK, May 21, 2018 /PRNewswire/ -- Bandera Partners
LLC, a significant unitholder of Boardwalk Pipeline Partners, LP
(NYSE: BWP), announced today that it has issued a public letter to
the Board of Directors of Loews Corporation (NYSE: L) regarding
Loews' potential purchase of Boardwalk's outstanding units. The
full text of the letter follows.
May 21, 2018
Loews Corporation
667 Madison Avenue
New York, New York 10065
Attention: Board of Directors
Dear Members of the Board:
Bandera Partners owns 1.6 million common units of Boardwalk
Pipeline Partners, a substantial stake for a small firm like ours.
Like Loews Corporation, we employ a simple value investing strategy
to pursue long-term returns on investment for our partners. In
Boardwalk, we believe we have found a collection of pipeline assets
trading at a very sharp discount to their intrinsic
value.
We appreciate that Loews has a contractual right to purchase the
common units of Boardwalk in certain circumstances under Section
15.1(b) of the partnership agreement. Whether the Tax Cuts and Jobs
Act of 2017 or the FERC's March 15,
2018 policy statement triggers this right is
debatable. What is not debatable, however, is that Loews has
an obligation to act in good faith in exercising that right.
Last week, we read the public letter from TAM Capital Management
accusing Loews of a "brazen attempt to effect a buyout of
[Boardwalk] for a fraction of its fair value," as well as reported
comments from a Barclays analyst questioning the "poor corporate
governance" of Boardwalk. While we respect the need for Loews to
carefully weigh its options, we agree completely with TAM
Capital that Loews is not permitted to game the timing of the
process in order to purchase units at a more favorable price for
itself, and we sincerely hope that is not what Loews is
doing.
Loews' right is triggered by the receipt of a legal opinion that
Boardwalk's tax status has or will reasonably likely have a
material adverse effect upon the applicable rate Boardwalk or its
subsidiaries can charge its customers. The FERC's policy change is
over two months old at this point, and a determination of whether
it has triggered Loews' purchase right should easily have been made
by now. We believe that if Loews delays the receipt of this legal
opinion to minimize the purchase price, this would not only violate
the partnership agreement under any reasonable reading, it would
violate Loews' obligation of good faith and fair dealing to the
minority unitholders.
Furthermore, Loews' April 30, 2018
announcement that it was "seriously considering" exercising its
purchase right, whether intentionally or not, triggered a
catastrophic collapse in the market price of Boardwalk's units. In
a recent report, JP Morgan's research analyst stated that "Loews'
actions clearly impacted the BWP unit price." The units' 180
consecutive trading day average, which sets the purchase price, is
considerably lower than it would have been without this
announcement. Further delays will leave investors with
uncertainty as to whether they will be forced to sell and at what
price, possibly depressing the market price even more. Loews
must not be permitted to profit at the expense of Boardwalk's
minority unitholders from its carelessness, at best, or
manipulation, at worst, in making this announcement.
Considering the foregoing, assuming Loews even has the ability
to exercise its purchase right, we believe that it should not be
permitted to purchase Boardwalk's units at a price less than
$13.14, the average closing price on
the 180 consecutive trading days immediately before
its April 30, 2018 announcement.
While $13.14 is substantially higher
than the units' current trading price, we believe this values
Boardwalk at far less than it is actually worth.
Despite Boardwalk's claim that everything about Loews' purchase
right was disclosed in the Risk Factors section of its securities
filings, the actual disclosure was grossly inadequate. Boardwalk's
Form 10-Ks informed unitholders only that an option existed, not
that the option would permit Loews to buy the units at a price far
below their intrinsic value and far below recent trading prices.
The Risk Factors in the original Form S-1 (issued many years ago),
and the most recent Form 10-Q (filed April
30, too late to help unitholders), provided more detail than
every intervening securities filing, but were scarcely better. They
explained the circumstances that would trigger the option in great
detail, while discussing price in only the most general terms,
stating that Loews might purchase units "at an undesirable time and
price"—a boilerplate statement that could be true of any corporate
transaction, even one negotiated at arms' length with an
independent third party. Boardwalk was required to disclose
clearly and prominently in the Risk Factors that
investors' units might be seized from them without fair
compensation. Boardwalk's retail investors, many of whom are
retirees buying units for yield, were not sufficiently warned of
these risks related to Loews' purchase right.
We remain hopeful that investors' concerns are misplaced and
that Loews will treat unitholders fairly. We believe that you, as
stewards of Boardwalk's capital, made a tough but wise decision to
slash the partnership's cash distribution, and invest substantial
funds into the existing base of assets. While these strategic
actions depressed unit prices, they were implemented to drive
meaningful long-term returns for investors.
We estimate that Boardwalk has raised over $3 billion from its limited partners to execute
this long-term strategy. The benefits of these investments should
accrue to all of the partnership's investors, not just Loews. This
is why we believe the best outcome for unitholders would be for
Loews to pass on its purchase right altogether. If Loews does
exercise its option, we think that, at a minimum, it must do so
only at a fair price and in accordance with straightforward
procedures that accord with unitholders' reasonable expectations of
fairness. Any effort to evade these requirements would not only
fail, it would forever damage the sterling reputation that Loews
has built over many decades.
Sincerely,
Jeff Gramm
Bandera Partners LLC
About Bandera Partners
Bandera Partners is a
value-oriented hedge fund based in New
York.
Contact
Jeff Gramm,
(212) 232-4583
info@banderapartners.com
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SOURCE Bandera Partners LLC