Group 42, Radoff to solicit consents to replace Vaalco board members

Group 42, Radoff to solicit consents to replace Vaalco board members

By Claire Poole, The Deal

Oil services provider Group 42 Inc. and activist investor Bradley Radoff said Friday they intend to solicit consents from fellow stockholders to replace four of the seven members of the board of Vaalco Energy Inc. (EGY) with its nominees to make governance, strategic and operational improvements to reverse what they called "underperformance and value destruction" at the company. 

They said they and their affiliates own 11.1% of the Houston oil and gas explorer's outstanding shares. 

Vaalco's shares jumped 6.4% on the news to close at $2.16.

Vaalco said after the markets closed that it would review the group's materials but urged shareholders not to take any action.

A majority of the company's outstanding shares is required to remove and replace the board members, but since the investors' other three proposals require an amendment to the bylaws, they will need 66.66% approval, a source familiar with the situation said. The deadline is in 60 days, the source said.

The investors said that not only has the company's stock price suffered an "appalling" 72.4% drop in the past year under the current board's leadership, but its recent actions to adopt a poison pill and stockholder-unfriendly bylaw amendments represent a "blatant disregard" for the rights and best interests of stockholders. 

"With stockholder value rapidly destroyed and the board taking steps to insulate themselves rather than fix the problems, stockholders cannot afford to wait until the annual meeting to seek meaningful improvement on the board," they said.

Besides the poison pill, the investors said Vaalco's board extended an agreement with CEO Steven Guidry with an offensive "change in control" provision three weeks after receiving a letter from them urging not to renew it and to listen to their concerns. They said their nominees can help with cost cutting and exploring a self-tender offer to buy back Vaalco shares, which they claim would help address its low valuation. 

Their nominees include Peter Dickerson, a former Tullow Oil plc development executive who is Group 42's West Africa consultant; Michael Keane, chairman of Group 42 and a former executive at Hollywood special effects company Digital Domain Media Group Inc.; Radoff, principal of Fondren Management LP who used to work at Dan Loeb's Third Point LLC and Ken Griffin's Citadel Investment Group LLC; and Joshua Schechter, a value investor that used to work at Steel Partners.

On Sept. 28 Houston-based Vaalco said its board had authorized adopting a stockholder rights plan after Radoff revealed in a Sept. 25 13D filing that he and affiliates had amassed a 6.8% stake. At that time, Radoff said he would like to see a possible sale of the company, new management, changes in the capital structure, reductions in overhead expenses and a tighter focus and discipline on development and exploration spending. He also said he might seek governance or board changes.

San Antonio-based Group 42's operating companies include Well Flow International and Flo Trend Systems, which provide cleanup, chemicals, tools and separation solutions to companies worldwide. Its principal shareholder is president and CEO Paul Bell.  

Vinson & Elkins LLP is advising Vaalco, including Kai Haakon Liekefett, Stephen Gill, Atma Kabad, Leonard Wood, Justin Hunter, Jing Tong and Michael Holmes. Carmelo Gordon at Andrews Kurth LLP and Steve Wolosky at Olshan Frome Wolosky LLP are counseling Radoff and Group 42.